Do you ever feel like you’re treading water financially? Are you living paycheck to paycheck because of your credit card debt?
The average person has more than $35,000 in debt, and credit cards are largely to blame. They seem like such a convenient option until that interest rate kicks in.
You could be paying your minimum balance every month toward interest instead of lowering your principal. Is there a better option out there?
In this article, we’ll give you the lowdown on using a personal loan to pay off credit card debt. We’ll also help you find bad credit personal loans.
Unsecured vs. Secured Loans
The first step toward getting a personal loan is to talk to a credit union about which kind of loan you need. Credit unions often have lower interest rates than banks and are more willing to lend money.
A secured loan means that you’ll be putting up collateral, such as your car or even your house. If you have decent credit, you may be able to get a lower rate on a secured loan.
On the other hand, an unsecured loan requires a credit score of at least 700. Before you talk to your bank or credit union, take a few minutes and check out your credit score online.
In general, it’s a good idea to go to a credit union for personal loans. Their interest rate tops out at 18% and you may have longer repayment options.
Slash Your Interest Rate
One of the best reasons for taking out a personal loan is getting a lower interest rate. If you’re committed to paying off your credit card debt, you need a manageable interest rate.
Here’s an example: if you have $1,000 in credit card debt and a 25% interest rate, you’ll end up paying $1,280 over the course of two years.
That’s $200 more than you owed, just going to interest.
If you can get a personal loan that has a rate of 18%, you’ll only have to pay $1,100 in total.
Of course, if your credit is good, you’ll end up paying far less in interest.
Lower Your Monthly Payment
Another benefit of personal loans for credit card debt is lowering your monthly payments. If you want to double up on payments, you can, but that could actually hurt your credit score.
Surprisingly, your credit score improves when you have a few open accounts. You don’t want to drag out your repayment schedule, but you do want to establish a consistent payment history.
Even if you have iffy credit, there are bad credit loans with guaranteed approval. Before you apply for a personal loan, think about how much you can repay every month.
Ideally, you should be aiming for a 24-month or 12-month repayment schedule.
Consolidate Your Debt
Before you get a credit card debt loan, make sure that your credit cards allow balance transfers. Some credit cards offer 0% interest for the first year, but they don’t always let you consolidate all of your accounts.
If you’re wondering how to consolidate credit card debt, just talk to the loan agent at your local credit union. They can help you contact your credit cards and combine them into one account.
If your debt is greater than $10,000, you might want to talk to a credit specialist. They can coordinate your debt consolidation, getting you a lower interest rate.
For accounts that are in default due to non-payment, try to see if the company will take a partial repayment.
Are Payday Loans Worthwhile?
Payday loans are short-term loans that often have high interest rates. You might think that a payday loan is a good idea, but you have to make sure you can pay it back immediately.
The problem with payday loans is that you’re going to be charged $20 or more for every $100 that you borrow. So for a $1,000 loan, you’ll need to pay back $1,200.
If your repayments were spread out over a few years, you could pay $50 per month. However, payday loans need to be repaid within a week or two.
Before you decide to get a payday loan or a title loan against the value of your car, talk to your credit union or look for a bad credit loan online.
The Hidden Cost of Being in Debt
Lots of us panic when it comes to our money. We worry that we’re always going to be in debt and we worry about being able to retire comfortably when we get older.
The truth is that money-related stress can be terrible for your health. If you have headaches or insomnia more than once per week, you could be setting yourself up for heart disease or a stroke.
If your level of debt is starting to get to you, it’s time to do an audit. Take out all of your credit cards and check their interest rates.
Next, give them a call and make sure they allow full payoffs with a personal loan. Loans can take a few weeks to clear, so you may have to make one more round of payments on your credit cards.
Get a Personal Loan to Pay off Credit Card Debt
When you get a personal loan to pay off credit card debt, you’re going to have to stick to the repayment schedule.
Any lapse in payment will be reported to the credit bureau and will hurt your credit score. Always make sure that you can repay the amount that you’re borrowing.
After you get your personal loan and pay off your credit cards, you should probably cancel those accounts. Having active credit cards on hand will just get you back into the same situation.
Just look at it this way: the sooner you pay down your credit card debt, the sooner you can start to save for retirement.
Are you interested in making more money but you don’t know how? Check out our blog and start investing to live your best life!