First Financial Personal Loans

Is Taking Out a Personal Loan a Good Idea?

Is Taking Out a Personal Loan to Pay off Credit Cards a Good Idea?

Is Taking Out a Personal Loan to Pay off Credit Cards a Good Idea?

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.

Taking Out a Personal Loan to Pay Off Credit Cards

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:

  • Your credit score
  • Your annual income
  • Your debt-to-income ratio
  • Your employment status

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.

The Benefits of Paying Off Debt With Loans

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:

  • Personal loans have lower APRs than credit cards
  • You can pay off all your credit cards with one loan
  • You only have to make one monthly payment going forward

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.

The Disadvantages of Using Loans for Debt from Credit Cards

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:

  • You may pay higher fees on personal loans
  • You may not be qualified for a lower personal loan APR
  • You may end up with more debt than you started with

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.

Other Solutions for Paying Off Credit Cards

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.

Stop Using Your Credit Card for Purchases

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:

  • Electronics
  • Appliances
  • Travel

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.

Use Debt-Canceling Strategies

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:

  • Paying off high-interest debt first
  • Paying off the credit card with the lowest balance first, then add that monthly amount to pay down the next lowest balance
  • Paying more than the monthly minimum balance

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.

Do a Balance Transfer

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.

Looking for Affordable Personal Loans and Credit Cards?

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!

Common Personal Loan Application Mistakes and How to Avoid Them

approved personal loan stamp illustration design over a white background

Common Personal Loan Application Mistakes and How to Avoid Them

Personal loans grew by 19.2% in the first quarter of 2019.

With more people than ever applying for and using personal loans, there are also more people making avoidable personal loan application mistakes. Mistakes that cost borrowers more in the long run!

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If you’re looking to join the many people applying for personal loans then it’s important that you avoid these mistakes so you can get your loan with the minimum amount of stress and extra costs.

In this post, we’ll go over some of the most common mistakes made in the personal loan application process, and how to avoid making them.

Keep reading to learn more.

Not Shopping Around

One of the biggest mistakes borrowers make is to not compare different lenders before applying for a personal loan. Different lenders will all have their own loan fees and penalties as well as different basic requirements for approval. Compare the various:

  • Interest rates
  • Origination fees
  • Payment schedules
  • Prepayment penalties

While it can be very tempting to go with the first option that you find, this can wind up costing you more over the life of the loan in interest and fees. Be sure to compare local banks, national banks, credit unions, online lenders, and different types of loans.

One of the things you should pay close attention to when choosing your personal loan provider is their lending practices and any kind of predatory actions. These are things such as abnormally high-interest rates or late fees, rushed approvals, and encouragement to lie on the application.

Not Paying Attention to the Details

When it comes to personal loans, there are so many little details that it can be easy to get overwhelmed and ignore them, but this can majorly backfire. It’s critical to pay attention to what the application, origination, late payment, and returned check fees are, not just what the monthly payment will be.

If you’re not aware of these fees then it can be easy to make a mistake that you’ll be penalized for. For example, if your loan has a prepayment penalty, you could be charged extra for paying off your loan early. This is something you need to be aware of but could easily overlook.

This also applies to reading the fine print on closing documents. These include important information regarding how interest is calculated, what forms of payment they accept, and the payment schedule. While these may seem like small details in the grand scheme of things, they can make a big difference in how you pay back your loan.

Stretching the Truth

Some people consider getting a personal loan a last resort. This means that when they do apply for one they may feel desperate that they need to be approved. But no matter how desperate you’re feeling it is crucial that you don’t stretch the truth or outright lie about your current financial situation.

Lying on a loan application is illegal and can come with massive consequences including fines, being barred from ever applying for a loan again, and even jail time.

There are lenders out there that will work with people with poor credit, low income, or other financial issues. Just be honest.

Not Having a Budget

One of the first things you should do when considering applying for a personal loan is create a budget so you know exactly how much loan you can afford. If you jump into a loan without considering whether you can really afford it then it can put a great financial strain on you when it’s time to make your payments.

You need to be sure that you can afford the monthly payments because if you can’t and you miss even one payment, it can negatively impact your credit score, and cost you even more in missed payment fees. While you may feel like you’re solving one financial problem with the loan, you could be creating another even worse problem down the road.

This budget should also include an emergency fund so that if something should happen to you like an injury or loss of income you’ll still be able to make your payments.

Borrowing Too Much

Just because a lender is willing to lend you more than you asked for, does not mean that you should accept that larger amount. While more money can sound like a big bonus it also comes with more principal to repay, more interest, and higher fees that are sometimes based off of a percentage of the loan itself.

If you take out a larger loan than you need and miss any payments it can have negative consequences for your credit score and your future borrowing power.

Avoid making this mistake by taking out only the amount you need, not more. Don’t let predatory lenders convince you to take more.

Assuming You’ll Be Approved

A pre-approval does not necessarily mean you will be approved for the actual loan. This can cause a lot of problems if you move forward and begin spending money before you’ve actually been fully approved for the loan.

Pre-approval doesn’t include all of the details in your credit report that will be found during the actual loan application process. If something unexpected comes up and your application is denied you can wind up in great financial distress.

Be sure to avoid spending like you have the loan before you actually have the money in your account, and make sure you have a backup plan for what you’ll do if your application isn’t approved.

Avoid These Personal Loan Application Mistakes

A personal loan can be a powerful tool for financing important things in your life, but it can also be very expensive and complicated. Be sure to avoid making these personal loan application mistakes to keep the process as smooth and cost-effective as possible.

If you’re in need of a personal loan fast, we can help. See what you’re qualified for today!

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