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Should You Take Out a Personal Loan to Pay Off Your Credit Card Debt?

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Credit card debt can have huge impact on your financial flexibility. In particular, having too much debt can decrease your credit score which could make it difficult for you to apply for a mortgage or borrow any type of loan. Therefore, paying off your credit card debt is a great way to improve your financial situation.

One way that this could be done is to take out a personal loan. However, is this the best way to pay off your crippling credit card debt?

What is a personal loan?

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A personal loan is a type of loan that can be used for a variety of purposes. Most personal loans are flexible which means that they can be tailored to meet your needs. Personal loans are different from credit card debt.

Personal loans are a lump sum of money that are repaid over a finite period of time. On the other hand, credit card debt is a revolving amount of money that is determined by how much the user chooses to spend.

Is personal loan debt better than credit card debt?

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The main reason that people choose to take out a personal loan in order to pay off credit card debt is that personal loans can be a lot easier to handle. The interest rate of a personal loan is typically much lower than that of credit card debt.

By swapping one for the other, you may be able to decrease the amount that you need to repay. As well as this, a personal loan is one lump sum that prevents the debt from ballooning out of your control.

Whereas, credit card debt often comes with a high interest rate and can easily accumulate overtime. Consequently, personal loan debt can be easier to repay.

Will a personal loan affect your credit score?

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Personal loans can either hurt or improve your credit score, spending on how you pay it back. If you pay the loan back in good time, you could see significant improvements to your score. However, if you make late payments or fail to pay back what you borrowed, your credit score could dip.

If your credit score has been harmed by credit card debt, taking out a personal loan could be a good way to improve it. Personal loans often have lower interest rates than credit so can be easier to pay back.

What could you save by repaying credit card debt with a personal loan?

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Taking out a personal loan to repay credit card debt could lead to fantastic savings! If done right, using a personal loan to pay off your credit card debt can reduce the total amount of interest that you pay.

To save money, you will need to take out a personal loan that has a significantly lower interest rate than that of your credit card issuer. You will also need to keep on top of repayments.

You can calculate exactly how much you could save by using the personal loan calculator by SoFi. This is a great tool for working out how much you could save on interest by swapping one debt for another.

Should I take out a personal loan to pay off credit card debt?

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If you want to minimise the interest that you pay then using a personal loan to pay off credit card debt is a good option. There is no limit to how much you can pay off at one time so, it may be wise to try and pay off your credit card debt in one payment.

Take a look at how much you owe and take out a personal loan that covers the entire amount. Once you have covered the credit card debt, you will need to repay the personal loan to the lender.

How to take out a personal loan

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Taking out a personal loan requires you to complete an application. First, you will need to find a good lender that offers a competitive deal. It is wise to choose a lender that has a good reputation and offers low-interest rates.

A good idea is to use a personal loan comparison site that will give you the details of various lenders so that you can make comparisons between them.

Here are a few things to look out for when choosing a lender:

  • Good reviews from previous customers
  • Low interest rates
  • Good brand credibility
  • A secured payment system
  • Low lending fees and charges

Also, always remember to fully read the loan terms and conditions. While most lenders are clear about what they ask, it is not unusual to get caught out by terms that are hidden within a document.

Are you eligible for a personal loan?

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The second step of taking out a personal loan involves passing eligibility criteria. Loan providers tend to look for applicants who can prove that they will be able to repay the loan in good time. In most cases, this means having a good credit score; however, other providers will be able to make exceptions.

If your credit score has been affected by debt, you may be able to prove eligibility another way. There are a number of loan providers who are willing to lend money to individuals who want to pay off their credit card debt.

Other ways to prove loan eligibility include: providing evidence that you pay your bills on time, paying off a chunk of your existing credit card debt and minimising your monthly outgoings. Lenders want evidence that you are financially secure.

How to pay off your credit card debt with a personal loan

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Taking out a personal loan is one of the easiest ways to pay off your debt. Once the loan has been transferred into your bank account, you will be able to pay off the debt entirely.

Always double check that you borrow enough to cover the whole debt and try to pay it off as quickly as possible to avoid building up any further interest!