It’s a feeling of empowerment when you gracefully swipe your credit card at a store to make a purchase. But when you see your credit card statement, you feel overwhelmed by the amount of debt you have piled up. You feel discouraged too when you realize that with the minimum amounts you pay towards your credit card each month you may take several years to clear the debt you have taken on. Why do people land up into multiple credit cards debts? Firstly, it’s easy to get credit cards because they are unsecured loans. Secondly, it’s so easy to swipe your credit card and pile on debt because there is practically no physical exchange of money and goods. It works at a subconscious level.
However, there are ways you can consolidate your credit card debt. Here are the most effective ways you could get money to consolidate credit card debt:
- Borrow from your line of credit
- Take out a personal loan from a bank or online platforms.
- Borrow against your home or vehicle.
- Open a balance transfer credit card and transfer all your debts.
- Borrow money from family or friends.
One of the most popular and effective ways of credit card debt consolidation is taking out a personal loan.
Benefits of Using a Personal Loan to Pay off Your Credit Cards Debt
1.Get Lower Interest Rates
The personal loan interest rates are usually lower than the interest rate you are paying on your credit card. Although, the interest rate you get on your personal loan depends on your credit score, it will be significantly lower than that of credit card’s. That’s solid savings!
2.Make Lower Payments
A personal loan has a loan tenure that can span over usually not more than 5 years. That means if you have a long loan tenure your monthly payments will be lower, and you will be paying less than probably the monthly minimum amounts due on your credit cards because of the low interest rate on your personal loan.
3.Pay Less Upfront Fees
A personal loan is an unsecured loan. That means you don’t need to put up an asset or guarantor for security. However, you need to pay a one-time upfront fee which is quite nominal.
4.Take Advantage of Flexible Repayment Period
Personal loans usually have a flexible repayment period, which can range from 2 months to 5 years. If you decide on a shorter repayment period, your monthly EMI is going to be higher, but it will be still lower than what you would be paying on your credit cards. You can also stretch the repayment period to its maximum and benefit from lower monthly EMIs.
5.Boost your Credit Score
The ratio of outstanding balances to available credit on your revolving line of credits is one of the factors that can drastically affect your credit score. If the ratio is high, it can potentially lower your credit score. Taking out a personal loan to consolidate your high credit balances is also a way to improve your debt-to-available-credit ratio.
6.Use Remaining Funds for Other Purposes
A personal loan is a multi-purpose loan. If after paying off your high credit balances, you are still left with money, you can use it for any purpose you want. No questions asked. You can buy the big ticket item you always wanted to or indulge in making some home improvements. The choice is yours.
The Bottom Line Here is…
Taking a personal loan to pay off your credit card debt is a great idea. You’ll be able to manage your credit better. However, if you are not disciplined about using your credit card responsibly, you can slip away into the debt hole much harder than before.
Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap, India’s first app-based credit-line. Shiv eats, breathes and sleeps finance, to the dismay of friends who’ve endured unsolicited advice on their investment choices, budgeting skills, or lack thereof. Luckily for them, Shiv has diverted this energy toward writing about various financial topics online. He loves it when people actually ask him for advice on how they can use the flexibility of MoneyTap’s personal loan. To know more, please visit https://www.moneytap.com/types-of-personal-loans.html