Another issue with using a personal loan in this fashion is that lenders who provide personal loans usually do so with much shorter terms – usually in a couple of weeks. You’ll have longer to repay the debt if you find another way to pay off a credit card.
But there are advantages to using a personal loan in this way. The amount of available credit you will have will increase, as many credit card issuers will increase your credit limit when the balance due is paid.
The other advantage is that your credit rating will improve. This could mean other loans at much better rates.
But consumers should be wary when using personal loans to repay credit card debt. Because of the higher rate of interest, it’s usually best to just soldier on and make the payments on the credit card, rather than have to repay a higher interest rate personal loan in a hurry.
An alternative source should be looked for to pay off the credit card debt, such as a home equity loan or a line of credit. You could also use the equity on any property you might own. These types of loans usually have much lower interest rates and longer terms – this makes them much more manageable.
Consider these tips on helping your repay your credit card debt:
- Pay more than the minimum amount each month
- Use money from your savings account.
- Borrow against your life insurance.
- Borrow from your 401(k).
- Renegotiate the terms of your credit card agreement with the card issuer.
- File bankruptcy – as a last resort.
Remember that your credit score will play a huge role in this process. If you have a bad credit score, you may not even qualify for a personal loan unless you get one that is unsecured, which means a really high interest rate.
Your last step in this process would be to learn from your experience and never run up unmanageable credit card debt again. Credit cards are a double-edged sword. If you know how to use them properly, they can be a great tool to have in your financial arsenal.
But if you don’t possess this knowledge, you can quickly find yourself drowning in too much debt, barely able to make minimum payments.