If you are like many Americans and have credit card debt, you know it can be difficult to juggle several payments every month. Plus, you have high credit card interest to deal with. Should you worry about paying the card off that has the highest balance or the one with the highest rate?
Instead of worrying about all of these issues with credit cards, more consumers are leveraging their debt with personal loans. Taking out a personal loan to pay off credit cards may help you to kill multiple birds with one stone. You can use a personal loan to pay off your credit cards completely, and because many personal loans have lower rates than credit cards, you could save money on interest every month.
In this article, we will talk about the benefits of paying off credit cards with personal loans. If you have questions, talk to a loan adviser about which personal loan may be best for your needs.
Why Are More Consumers Using Personal Loans To Pay Off Credit Cards?
If you have thousands in credit card debt like many Americans, a personal loan may pay off your cards in full. Doing this may not just give you more peace of mind, it also may raise your credit score.
Paying off credit cards with a personal loan is not the same as having no debt; you will still need to pay off your personal loan. But when you pay off credit card balances, you no longer have those high interest rates that can top 20% in some cases. If you have a credit score of at least 650 or 670, you can often get a significantly lower interest rate with a personal loan.
You May Have A Lower Rate
The average credit card rate is around 20% in 2023, and the typical personal loan is only about 11%. Your rate will depend on your debt-to-income ratio and credit score and how much you want to borrow, but there is a chance a personal loan will have a lower rate than most credit cards.
You can easily save hundreds in interest per year with a personal loan, and that is one reason so many consumers are leveraging a personal loan to handle their debt.
Just 1 Monthly Payment
It can be difficult to deal with multiple credit card due dates every month. You can be late without meaning to and pay a heavy penalty. The good thing about a personal loan is it lets you consolidate your debt into one loan and payment. This makes it simpler to plan your finances and put money aside for your loan payment. It will help you pay down your debt faster if you set aside a bit of extra money per month for your loan payment.
May Boost Your Credit Score
Applying for a personal loan will cause a hard credit check that lowers your score by a few points. But over time, having a personal loan can increase your credit score. Taking out the personal loan changes your credit mix, which comprises 10% of your score. It shows lenders that you are responsible with money by having several types of debt and credit.
You also will reduce your credit utilization when you pay down your debt. If you pay off all of your credit cards, it will reduce your utilization and that can cause a significant increase in your credit score.
Other Ways Americans Leverage Personal Loans
There are other ways that you can use a personal loan to improve your finances. Let’s take a look at a few:
Doing Home Renovation
While many people consolidate debt and pay off credit cards with a personal loan, about 17% of consumers use the loan for home improvements. Spending a few hundred per month on a loan payment is a more reasonable alternative than spending $30,000 at once for a kitchen renovation. However, remember that using a personal loan to pay for home renovations will lead to interest charges, so the project will cost more over time.
Federal students loans are typically the best option to get a low-interest loan to cover college expense. But if you want to get a certificate or take a few online course, a personal loan can be a smart choice. Before you get a personal loan, talk to your employer to see if they will fund any of your continuing education.
Weddings in America can cost tens of thousands of dollars. If you and your partner are ok with taking on debt to pay for a wedding, a personal loan can be a good choice. You also can use a personal loan to pay for a wedding or engagement ring. It is often less expensive to fund such a large expense with a personal loan instead of a credit card.
A personal loan is a valuable alternative to credit cards to pay for many things you may want or need. In many cases, you can get a better interest rate and terms by using a personal loan to fund major expenses instead of a credit card. For more information, talk to a loan adviser today about the various options for personal loans.