Are Personal Loans A Good Way to Pay Off Credit Cards?
What You Need to Know About Credit Cards and Personal Loans
Consumers who have significant amounts of credit card debt sometimes get frustrated, and that’s understandable. When faced with a mountain of bills, it’s easy to get upset. Most consumers who have credit card debt are willing to try anything to get out of it – including personal loans. However, there are a few things to consider before taking that road.
Should I Get a Personal Loan to Pay Off my Credit Cards?
There isn’t one clear-cut answer to this question; however, there are some guidelines to follow. If your credit card debt has a very high interest rate (say 18% or more) then you might want to consider a personal loan to pay it off, but only if the rate you qualify for is less than your credit card rate.
And that's the tricky part. To get a low-interest personal loan, you're going to need good credit. If you have good credit, you can probably get a low-interest credit card so why would you want a personal loan instead?
No Balance Transfer Fees
When you transfer your credit card debt from one credit card to another, you may be charged balance transfer fees. With a personal loan, this isn't an issue. This alone could save you hundreds of dollars.
No Temptation
If you have a low interest credit card, you may be tempted to spend more. With a personal loan, that option isn't there. It only covers your existing credit card debt. There's no revolving credit to play with.
Points to Ponder
Just remember, all credit card debt decisions affect your credit rating differently. If you take out a personal loan and cancel all of your credit cards, you may experience a drop in your credit score.
If you do take out a personal loan to pay off your credit card debt, make sure that you keep some of your credit cards open. This establishes long-term credit relationships and a better available credit to total credit ratio, which are both good for your credit score. And a better credit score means qualifying for lower interest rates when rearranging your credit card debt.