Did you know that in May of 2024 Americans have over $1 trillion in credit card debt? If you're struggling with multiple balances, why not try a personal loan to combine them all? It might be the solution to lower your monthly payments and finally eliminate that current debt.

When a Personal Loan Makes Sense

You want to know when you'll be debt-free

A significant issue with credit cards is that ongoing purchases can prevent you from fully paying down your debt. In contrast, personal loans offer the advantage of a fixed interest rate, a set monthly payment, and a defined repayment schedule, allowing you to see when you will be debt-free for good.

You can unlock a better interest rate

When it comes to borrowing money, personal loans are the way to go. With an average interest rate of 12.38 percent, they are much lower than the hefty 22.76 percent APR on credit cards.

You can consolidate your debts into one payment

If you're frustrated with making credit card payments without significant progress, consolidating your debt with a personal loan could be a more effective solution. Afterward, consider using cash or debit cards to avoid accumulating more debt.

You can reduce your monthly payment

If you are struggling with credit card debt and looking for a more stable financial solution, a personal loan may be worth considering.

Picture this scenario: You owe $5,000 on one credit card at 17% APR and $7,000 on another at 21% APR. You can only manage to scrape together $100 per month for each card, totaling $200.

You can finally start making a dent in those payments by securing a personal loan for your $12,000 credit card debt at a 10% APR. Say goodbye to always playing catch up with just your interest!

You can extend your repayment timeline

Taking out a personal loan to settle your credit card debt could provide you with extended repayment terms and potentially reduce your monthly payments.

When a Personal Loan Doesn’t Make Sense

Taking out a personal loan to pay off credit cards can have financial benefits, but other options may exist. Indicators that suggest exploring alternative debt consolidation methods can vary from individual to individual but may include the following.

You have a manageable amount of debt that can be paid off promptly

If you have excellent credit, a balance transfer card may benefit you if you have moderate debt that can be paid off within 12 to 21 months. However, there may be a balance transfer fee.

When considering balance transfer credit cards, remember that transfer fees of up to 5 percent may apply, removing any potential savings. Additionally, some cards offer rewards and consumer benefits, so it is essential to compare offers.

You need help with your debt

During times of overwhelming debt, seeking assistance from a debt relief company or non-profit Consumer Credit Counseling Services can be beneficial. It is also worth considering debt settlement or debt management plans, but it's important to be cautious, as the Federal Trade Commission (FTC) warns that not all third-party companies offering debt relief are trustworthy.

Individuals facing overwhelming debt may consider bankruptcy. Before making a decision, it is recommended that they consult with a CCCS counselor. To ensure credibility, the FTC advises researching any agency under consideration by contacting the state Attorney General and local consumer protection agency.

You are going to keep using the same spending habits

Consolidating your debt will only tackle the underlying problem of overspending if your financial habits remain the same. You'll need to reassess your financial strategy before debt consolidation. Seeking advice from a personal finance expert or trying out different budgeting methods can help you discover a long-term solution tailored to your needs. By fostering sound spending practices and addressing the core reasons behind your financial challenges, you can minimize the risk of falling back into debt.

How to Pay Credit Card Debt with a Personal Loan

To use a personal loan for credit card debt, follow these steps.

Apply for a loan

Compare different personal loan services to assess their eligibility requirements and apply for the loan that best suits your debt and credit score.

Use the money to pay off your credit card

The funds are often deposited directly into your checking account when receiving a personal loan. It is important to use this extra money wisely, such as paying off credit card debt, rather than spending it on other expenses. Misusing personal loan funds can result in remaining in debt and having to pay off the personal loan as well.

Pay off your personal loan quickly

After fully paying off your credit card debt, prioritize paying off your personal loan quickly. Check for any penalties for early repayment and allocate extra funds toward your loan each month.

Avoid using your credit cards

To avoid falling back into debt, you should refrain from using credit cards while paying off a personal loan. Only make purchases that can be fully paid off each month.

What to Consider When Choosing a Personal Loan

Before finalizing a personal loan agreement, it’s recommended to consider the following steps.

Compare interest rates

When comparing personal loan offers, it is important to assess interest rates as a first step.

Personal loan interest rates vary based on the lender and the borrower's credit history. Borrowers with higher credit scores usually qualify for lower interest rates. Interest rates are typically represented as an annual percentage rate (APR), encompassing both the loan rate and any accompanying fees.

When comparing loan rates, it's important to consider even minor differences, as they can significantly impact the total amount you will repay. Look for loans with low-interest rates and compare the APR to determine the total sum that you could potentially pay.

Review the fees

Personal loan fees may consist of origination fees, late payment fees, and prepayment penalties.

• Origination fees are calculated as a percentage of the loan amount and are subtracted from the loan balance before it is transferred to your checking account.
• Late payment fees are assessed by loan providers when minimum payments are missed or made after the due date.
• Prepayment penalties may be charged if you pay off your personal loan early.

Pick the right repayment term

Personal loan terms range from a few months to several years, impacting both monthly payments and total interest paid. Opting for a longer term lowers monthly payments but results in higher overall interest costs.

Consider repayment flexibility

When searching for a lender, consider one that offers flexible repayment options, such as the ability to make extra payments, change your due date, or defer payments in case of financial difficulties. Flexibility can assist in managing unexpected financial changes and avoiding late fees that may impact your credit.

Look for good customer support

When selecting a lender, it is advisable to choose one with a reputable track record in customer service and support. It is essential to have access to assistance in case of any inquiries or issues regarding your loan.

To assess the quality of customer support, consider calling a lender to ask questions before obtaining a personal loan.

Consider how long you were on hold and the responsiveness of the customer service agent when evaluating a personal loan provider. Reflect on the overall experience to determine if they offer good customer service.

It is recommended to visit reputable websites such as the Better Business Bureau (BBB) and Trustpilot to read reviews from customers of the company you are thinking about.

Pros and Cons of Using a Personal Loan to Pay off Credit Card Debt

For individuals struggling with credit card debt, considering a personal loan as a means of payment may be a viable option. The reasons to explore this route include these potential benefits and drawbacks for your specific financial circumstances:

Negotiate a lower interest rate

Consider contacting your credit card lenders to inquire about lowering your interest rates, which could expedite the payoff of your credit card debt. Remember that cardholders with a positive payment history are more likely to receive a rate reduction than those with a record of late or missed payments.

Apply for a balance transfer credit card

Balance transfer credit cards allow you to consolidate your credit card balances onto one card, typically offering 0 percent intro APR for 12 to 21 months to help you pay off your balances without accruing interest.

Ask about hardship programs

Credit card issuers offer hardship programs to assist individuals facing financial difficulties such as unemployment or unexpected financial burdens. These programs may include credit card forbearance, where payments and sometimes interest are temporarily waived. Contacting your credit card issuer during a financial crisis to inquire about hardship programs can prevent escalating credit card debt.

Sign up with a debt settlement service

Debt settlement services can assist in negotiating a settlement with credit card companies when you are unable to pay off your debt in full. It;s important to consider the fees associated with these services and the potential impact on your credit score. Remember to explore all options when managing credit card debt that has become unmanageable.

Seek credit counseling

Credit counseling services offer assistance with managing credit card debt, including budgeting and exploring debt consolidation options for more efficient debt repayment.

Use This Checklist to Assess Personal Loan Lenders

Unlock the secret to finding the perfect personal loan by using this handy checklist to evaluate online lenders and find one that matches your financial goals!

1. Determine how much you need

Get your finances in order before diving into the world of borrowing. Figure out exactly how much cash you need before embarking on your search for the perfect lender. By knowing your magic number, you can streamline your search and find the lender who can make your financial dreams a reality.

2. Check your credit

Discover the power of your credit score! Get a complimentary peek into your financial profile by snagging a free credit report from Equifax, Experian, and TransUnion - the credit unions who hold the key to your loan potential. Unlock your credit history and score today!

3. Get preapproved

Unlocking the power of preapproval for a personal loan can be your secret weapon in finding the perfect interest rate and terms. Say goodbye to endless searching and hello to the best personal loans tailored just for you!

4. Read your terms

Dive into the loan agreement to unravel the mysteries of interest rates, fees, and repayment terms. Unlock the secrets of the total cost, and beware of penalties for late payments or premature settlements.

5. Apply

After discovering the perfect lender for you, simply fill out the loan application and gather any necessary documents. Remember to show off your hard-earned income and validate your identity to seal the deal.

6. Review your offer

Unlock the potential of your dreams with a loan offer from the lender. Dive into the details and make sure it's tailored to your needs before taking the plunge.

7. Accept your loan

Seal the deal and make it official by accepting the loan offer and signing on the dotted line!

8. Repay your loan

Get ready to take charge of your personal loan payments! Decide if you prefer to manually submit your payments each month or set up hassle-free auto-pay. By staying on top of your bills, you can say goodbye to pesky late fees and hello to financial freedom.

Need a hand getting rid of that debt? Let a nonprofit credit counseling agency guide you through creating a game-changing debt payoff plan!

The CASH 1 Conclusion

Picture a life free from credit card bills or finally having funds for a vacation. By prioritizing debt repayment, you can increase your monthly savings. A personal loan can benefit debt consolidation, but explore all options first. Stop accumulating unpaid bills to get out of debt; choose cash or debit cards instead of credit while repaying your debts.