4 reasons why it’s not a good idea to take a personal loan to pay off your credit card

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Should I exchange one debt for another?


Key Point

  • Personal loans are an easy way to borrow money for any purpose, including paying off credit card debt.
  • You can run into problems with high interest rates, fees, and getting a personal loan that puts your home and car at risk.
  • Choosing a repayment method, increasing your income, and honestly evaluating your spending habits will make it easier to get out of debt.

personal loan It’s a way to borrow money that you can use for anything. As such, they differ from mortgages and car loans, which must be used to purchase a home or car, respectively.Getting a personal loan is very easy and you have to choose a lender based on the interest rates available (your credit score Affects the interest rate offered. The lowest interest rate applies to the borrower with the highest credit score), fill out an application, perform a credit check, get approval, receive a loan, pay off the loan over a period of months, or a year, if you are interested .

Interest rates on personal loans can be lower than on credit cards, so if you’re struggling with credit card debt, debt consolidation loan to get out from under it. Is this a good economic move? Here are some reasons why you should think twice.

1. Interest rates may not fall

If you are suffering from bad credit on top of your card balance, you may not be able to take advantage of the low interest rates.There is a money lender recommended for such people less than stellar credits, but you will end up paying higher interest rates than if you had good or excellent credit. One way to ensure you get the best possible deal, even with a low score, is to shop at multiple sites. personal loan lenderMany offer pre-approval for loans so you know what terms apply before you take the plunge.

Another Problem You May Face While Paying Back Using Personal Loans credit card debt is an additional charge. Some lenders may require payment of loan origination fees. It is often between 1% and 8% of the total amount owed. Other fees you may face may include penalties for early repayment of the loan, application fees, and late fees may also be incurred if payments are late.

3. Secured loans are riskier

If you don’t qualify for an unsecured personal loan, you may eventually need to borrow one. secured loanThese are sometimes offered at low interest rates, but this is because you are putting your collateral such as your home, car, or other valuables at risk. These will be seized by the lender if not repaid. This is a method you can use if you can’t get a loan in another way, but setting up collateral creates more potential problems when using the loan to pay off your credit card. .

4. Spending problems may persist

This last reason is a big one. You can save money if you can get an unsecured personal loan approval at a reasonable interest rate. credit card debt repaymentBut unless you’re really willing to dig in and get to the root of your spending problem, it won’t solve the problem. Let’s say you take out a loan, pay off your credit card, and get into trouble again. This time, all credit cards had a starting balance of $0.

It may sound like the safest bet to eliminate credit card temptations entirely. close card After they pay off, it’s often not a good idea. Closing unused cards negatively impacts your credit score by lowering your total available credit limit and lowering the average age of your account.

Ultimately, only you know yourself. If I pay off my card with a loan, can I recharge my card and avoid falling into an even deeper hole than before? personal loans may not be the best solution.

Debt Service Alternatives

Me freed from credit card debt Without a personal loan this year.I have Several Ways to Approach Debt RepaymentI was resorting to the Snowball Debt Act. With this method, you put a lot of money into paying off the smallest balance first, then move on to the next balance. All the money you had on your other credit cards by the time you reach the maximum balance will go to that one last balance of hers. Another debt repayment method with a similar concept is called the Debt Avalanche Method, which concentrates on paying off the highest interest rate debt first. You can save money this way, but it may not be as psychologically satisfying as snowballing your debt. Watching your debt snowball away can be very motivating.

Many well-meaning people will say you can just budget How to get out of money troubles, but this assumes you’ve made enough money to begin with. Determine your situation by comparing your expenses with your income. do a side job Or a well-paid full-time job (or both).

Debt repayment is difficult. It’s hard to be honest about your financial situation, but the (financial and emotional) rewards are: giganticTaking out a personal loan to get out of credit card debt might be a good solution, but consider all the angles above before making a firm decision. doing.

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