Should You Take out a Personal Loan to Pay Off Credit Card Debt?
When credit card bills are piling up, and consumers are having difficulties making minimum payments, some might consider taking out a personal loan to consolidate their debt into a single monthly balance. While this may help individuals gain a handle on payments and get locked into one low interest rate, there are still other options to consider before making this choice.
First, a balance transfer may be a better option. More credit card issuers are extending 0 percent rate cards to consumers with fair credit scores – or in some cases, poor credit ratings. In addition, several balance transfer cards offer longer introductory rate periods, some of which may be in effect for up to 24 months. For consumers with several credit cards that carrying varying rates, this option may be an effective way to consolidate debt onto one card and pay the balance off interest-free for several months.
It’s important that borrowers explore several different offers, however, because many have caps on the amount that can be transferred, it’s also crucial that consumers calculate how much they must pay each month to eliminate the total balance before the introductory period ends. While the 0 percent rate may be helpful in allowing borrowers to pay off their balance, these cards tend to carry higher standard rates than traditional products, which can be charged to a leftover balance retroactively when the initial period ends.
Shop around for the right financial product
Consumers who are unable to qualify for a balance transfer credit card and are still considering taking out a personal loan should also shop carefully for the right credit line. Individual credit scores will play a role in the interest rate and terms assigned to the loan agreement, so it can be helpful to speak to lenders about what type of rates they can expect to be assigned.
Lastly, speaking with a credit counselor is always a smart move before taking out additional loans to pay down debt. This is primarily because individuals who are weighed down by balances may not be informed about other ways to eliminate their burden without taking on lines of credit. For example, budgeting to pay down high-interest credit lines first can make a significant difference in how quickly and effectively borrowers can get back on the right financial track. Other methods, such as downsizing, taking on more hours at work and negotiating interest rates, are also useful alternatives to obtaining funding.