Balancing different credit card debts can be hectic and costly due to the high-interest rates. However, getting a personal loan to consolidate the debts is a good way of clearing the debts while saving on interest rates in the long run. Personal loans also come with fixed monthly repayments, fixed interest rates, and longer repayment terms, making it easy to plan your financial life.
Conversely, applying for personal loans to clear your credit card debts may have disadvantages, including the temptation to spend more than planned and pay higher loan fees. Comparing the pros and cons of using personal loans to clear credit card debts helps you make informed financial decisions.
What Are the Advantages and Disadvantages of Using Personal Loans to Pay off Credit Card Debt?
Pros:
- Save on interest rates: Credit card debts can accumulate high-interest rates within a very short time. Personal loans provide a larger loan amount that can clear all your credit card debts in full. Thus, repaying debts at once will save money in the long run.
- Flexible loan repayment plan: If you have multiple credit cards tracking them to pay off the debts every month can be challenging. It's also expensive to constantly service different loans. Fortunately, with personal loans, you consolidate the debts into a single loan with a flexible monthly repayment plan.
- Improves your credit scores: Most personal loan lenders report to the 3 main credit bureaus. Therefore, repaying your loan on schedule helps you improve your credit scores.
Cons:
- A personal loan is another debt: Clearing the credit card debts with a personal loan doesn't get you out of debt. Instead, you will have rescheduled your loan repayment plans but you will still be in another active debt, You must replan your financial life to accommodate the monthly loan repayments.
- No guaranteed low-interest rates: Applicants getting loans with bad credit scores may be charged high-interest rates on personal loans and may also be hit by other hefty loan fees. Regardless of the purpose of the personal loan, not everyone may enjoy the low-interest rates.
- Personal Loans can be expensive at times: Personal loans could be cheaper or more expensive depending on the loan repayment duration. You may end up paying high-interest rates especially if you get a long repayment duration. Furthermore, some lenders charge origination fees, late loan repayment fees, and other penalties that may make the credit costly.