If you have credit card debt, you are in good company. Studies show that the majority of Americans have some form of credit card debt. And 14 million Americans have five figures or more worth of debt from credit cards alone. Have you considered taking out a personal loan to pay off credit cards? Personal loans often have lower annual percentage rates (APRs), meaning you’ll pay less on the money you borrow. Yet, there are also some drawbacks to using personal loans to eliminate debt from credit cards. For example, you may not qualify for a personal loan APR that is lower than the rate you pay on your credit cards.
In this guide, we will tell you all the pros and cons of using loans for credit card debt. Plus, we’ll give you tips for paying down credit card balances if you don’t qualify for an affordable loan. Keep reading to learn more.
In 2023, the average interest rate on credit cards is a little bit over 20%. This is an average, so some credit cards have lower APRs, and others have higher interest rates. On average, personal loans have lower interest rates than credit cards. In 2023, the average is around 10–20%. The exact rate you will pay on a personal loan depends on various factors, including:
Other factors, such as the term period on your loan and whether you take out a secured or unsecured loan, also play into your APR.
A personal loan is one of the best solutions for paying off credit card debt in 2023. This is especially true if you can find an affordable loan (more on this later). Benefits of using loans for credit card balances include:
These last two advantages only apply if you use your personal loan to pay off all your credit cards. We don’t recommend taking out a loan to pay off one credit card if you carry debt on multiple lines of credit.
Of course, all these benefits can not come without some drawbacks. The following disadvantages of personal loans could make this option less attractive for certain borrowers:
The first two issues primarily occur when you have no credit, poor credit history, or a low credit score. The third con happens when people use loans to pay off debt but continue using their credit cards while paying on the loan. Luckily, financial institutions like First Financial offer personal loans for people with poor credit.
So, what if you do not qualify for an affordable loan? In that case, the goal is to pay down your credit cards as quickly as possible. Why? The faster you pay down your debt, the less you forfeit in interest. Here are the top ways to do just that.
The first thing you should do is stop swiping. Use credit cards for emergencies only until you pay off your debt. Also, start thinking about what you will use your credit card for once you pay off your debt. Experts recommend reserving credit for the following big-ticket purchases only:
Often, larger credit card purchases come with interest-free periods. For example, you may have six months to pay off your purchase before you’re charged interest.
As we mentioned, credit card debt is extremely common in the US. Financial experts have come up with many strategies for eliminating credit card debt quickly. Some of the most effective strategies are:
You can also come up with your own debt-canceling strategy based on your unique needs. The best strategy for you is the one that gets your balances paid down the fastest.
Another idea to consider is a balance transfer. Many credit card companies allow you to transfer all your outstanding credit card debts to a single account. Often, balance transfers also come with a preliminary grace period where you don’t have to pay any interest on your balance. However, you may have to pay a fee on the balance you transfer. So, this solution may not be best for people with significant credit card debt.
Taking out a personal loan to pay off credit cards can be a great way to get out of debt. But keep in mind that some people may not qualify for a personal loan without a good credit history. Are you searching for a personal loan you can qualify for? First Financial is on a mission to provide personal loans to borrowers just like you. Click here to get started on your loan application!
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