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Pay Off Credit Card Debt With Personal Loan

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Len Penzo
Pay Off Credit Card Debt With Personal Loan

The financial world can be stressful, especially if you are facing credit card debt. Often, people are unsure how to rid themselves of debt once it has accumulated. Weighing your options on how to consolidate this debt into a manageable loan does not have to be complicated. 

Examining the pros and cons of different types of loans, their features, and understanding which one is right for you is vital. Here we will explore how different personal loans can help pay off credit card debt. 

Debt Consolidation Loan

A debt consolidation loan combines your credit accounts into one to make them more manageable. They typically have lower monthly payments, lower APR (annual percentage rate), shorter payment plans, and they are less damaging to your credit score. IN some cases, they can even be tax-deductible depending on your circumstances. 

However, they can be more challenging to obtain with lower interest rates if you have a low credit score. Prepayment penalties are also a possible penalty for this type of loan.

Ultimately, your needs will determine if this loan is right for you. Always do your research before accepting any loans. This plan is better for you if you are wanting to eliminate your debt in full rather than just shifting it around, such as on credit cards.

Annual Percentage Rate

An annual percentage rate, or APR, tells the recipient of a loan how much will be charged for borrowing those funds for a year. It does this by considering interest rates and extra charges, and it’s crucial to check the APR of any loan you are considering taking out. 

If the APR is too high, it could lead to penalty charges down the road. There are two types, fixed and variable, which can both appear in one offer, especially with credit cards. Fixed APRs ensure an unchanging interest rate while a variable APR has fluctuating interest rates. 

Checking the APR is important when researching loans. Be sure to understand its concept and what is best for your finances.

How to Consolidate Credit Card Debt

There are a number of ways to consolidate credit card debt, but this article will focus briefly mention four different methods. Credit card consolidation loans, home equity loans, 401(k) loans, and debt management plans all offer different ways of paying your debt. Depending on your needs, one of these could be perfect for you. 

Credit Card Consolidation Loans

Credit card consolidation loans are personal loans with both a fixed interest rate and a monthly payment plan. They’re typically offered by credit unions and have a lower APR when compared to other options.

Home Equity Loans

Home equity loans borrow against the worth of your home; thus, you run the risk of losing your home if payments are not made. There are lower interest rates, and these can be gained even with low credit.

401(k) Loans

401(k) loans are only possible for those with active retirement 401(k) accounts, meaning payments come directly out of your savings. There is no impact on your credit score, and shorter repayment times are an appeal. However, penalties for non-payment are harsh, and there is no security if you lose your job and have no other savings. 

Debt Management Plans

Debt management plans often go through non-profit credit counseling, commonly used by people with bad credit that keeps them from using other repayment options. Repayment times are short, and these have been proven to cut overall interest in half when properly managed. 

By assessing each of these different plans, the best option for you can be determined. Different features work better for different people, but be sure to consult with a financial advisor upon deciding. 

Which is Better: Personal Loans or Credit Cards

Depending on the size of your debt, a personal loan might not be the best option. With small enough amounts, repaying the debt on a credit card may be simpler. Deciding which is better for you, personal loans vs. credit cards, is equally as important as deciding between what loan option best meets your needs. 

Personal loans are better at consolidating higher-interest debts. These are best for people that repay their bills in full monthly. However, they do charge prepayment penalties if the total amount is paid before the loan is due. 

Credit cards allow you to pay a balance over some time, offering more security. However, not repaying on time can cause hundreds of dollars in interest a year. Credit cards are better for smaller debts that you can quickly repay in full. 

Conclusion

Depending on your debt, different repayment options can help you. Personal loans often give you more control for repaying larger debts. There are many different kinds; thus, it is especially important to do your research to understand each type and its features.

Also, consider if a credit card would be better for paying back your debts rather than a personal loan. Assess your finances and select the plan that is best for you.