A personal loan allows you to borrow an amount of money from a provider and to repay it back with interest. A personal loan can be used for several purposes: to fund a vacation, to buy a new car, to renovate your home, or even to consolidate debt. But should you get a loan to pay off credit cards debt?
Is it worth it to get a personal loan to pay off debt?
Getting a loan to pay off your credit cards debt can help you pay off your debt faster. But it all comes down to whether your credit health and other aspects of your financial life are in good shape.
This article will address the pros and cons of using personal loans to pay off credit card debt.
In the meantime, if you’re interested in comparing the best loan offers with Even Financial, click here. It’s completely free.
4 Reasons You shouldn’t use a loan to pay off credit cards debt
1. You have a bad credit score.
A personal loan can help you consolidate your credit card debt and help you pay it off faster. But if you have a bad credit score, applying for a loan can hurt you more than it can help.
For one you might get rejected. And each time you apply and get rejected, it is another hard inquiry placed on your credit score, lowering your credit score down further.
And if you do get qualified, your interest rate might be higher than the one you’re already paying on your credit cards.
That is because personal loans with a lower interest rate are reserved for those people with a good to excellent credit scores.
So check your credit score before applying.
2. You only have a few thousand dollars in credit card debt.
Getting a loan to pay off credit cards debt may make sense if you have several thousands dollars in credit card debt.
Most lenders, with the exception of a few, offer a minimum of $5,000 personal loans. For example, Payoff’s personal loan offers range from $5,000 to $35,000. So, if you only have one or two thousands dollars in credit card debt, it may not be worth it to get a personal loan to pay it off.
Have a good credit score? Take out a credit card consolidation loan from Payoff. Payoff loans are specifically designed for people who want to consolidate credit card debt. Loans start from $5,000 to $35,000. They require a minimum credit score of 640. Get started with a Payoff loan now.
3. You can’t make the monthly payments.
When you take out a personal loan to pay off credit cards debt, you’re locked into a set of monthly payments to be made within a set of period of time.
Most often than not your monthly payments might be higher than the minimum monthly payments on your credit cards. And if you have a cash flow problem, or you have an unstable job, this can be a problem.
That is because if you miss payments on your loan, not only will you pay late fees, it can also negatively impact your credit score.
So before you decide to take out a credit card consolidation loan, ask yourself if you can afford to make the monthly payments. If your answer is yes, then taking a loan to pay off credit cards debt may be a good financial decision.
Need a personal loan? Shop and compare loans based on your credit score.
4. You ignore the root source of your debt.
If the reason why you have a lot of credit card debt is overspending, a personal loan may not be the solution to solving your problem. That is because, you’ll see yourself keep using a personal loan to pay off your credit cards debt, and therefore putting yourself into more debt over and over.
In fact, overspending and credit card debt go hand-in-hand. If you stop overspending, your debt may be reduced significantly.
How Can I get the right personal loan to pay off my credit cards debt?
If you have your financial life in order, you’re probably wondering how you can get the personal loan to pay off my credit cards debt faster. Follow these quick steps…
Step 1: Compare personal loans
To get a competitive loan rate specific to your needs, you can use Even Financial’s personal loan search tool. The right loan will be able to save you the most money in interest and fees.
Step 2: Take out a credit card consolidation loan from Payoff
Payoff provides loans to individuals to use for one specific purpose: to people who want to consolidate credit card debt. Loans start from $5,000 to $35,000.
They require a minimum credit score of 640. Payoff do not directly fund the loans. They work directly with 4 lenders to fund you the loans: technology Credit Union, Alliant credit Union, First Electronic Bank, First Tech Federal Credit Union. Get started with a Payoff loan now.
Step 3: Use a payoff loan calculator
Use a payoff loan calculator to see how much your monthly payments will be. A payoff loan calculator will help calculate your repayments and interest on the amounts of your personal loan.
A payoff loan calculator will also let you know how long it will take you to pay off your personal loan.
For example, let’s say you borrow $20,000 worth of personal loan with an interest rate of 10%. It will take you 2 years to pay off your loan if you make a $923 monthly repayments.
So, is it worth it to get a personal loan to pay off debt?
Whether you should use a loan to pay off credit cards debt depends on your credit health.
While using a personal loan can help you save money on interest and potentially help you get out of debt faster, it may not be a viable option for you for the reasons stated above.
Credit Card Tips:
- If you have more questions beyond getting a loan to pay off credit cards debt, you should talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
- Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.