Taking out a personal loan is a smart financial move, at least in part, on the reason you want a loan. However, reasons like buying things you can’t afford, can increase your debt and end up harming your credit. Good reasons, like reducing or refinancing your credit card, can help you improve your financial health. Either way, a personal loan isn’t easy money or a quick fix. You should proceed with caution, even if it’s for a very good reason.
Reasons to get a Personal loan to refinance your Credit Card
People get personal loans for lots of reasons. Whether getting a personal loan is a good decision depends on your financial situation and habits. Using a personal loan to merge and pay off credit card debt can be a good idea if you have accounts with high-interest rates. Personal loans often have lower interest rates than credit cards, so they can help you consolidate your credit card debt as well as pay less interest on the debt overall. If you carry a credit card balance from month to month, an APR of nearly 14% could add up to a lot of interest. And keep in mind that this is the average. APRs can be even higher for people with lower credit scores or poor credit history.
Compared with credit cards, a personal loan can offer three main advantages: a single monthly payment for the integrated debt, a fixed interest rate, and a fixed loan term,
Single payment
If you consolidate your debts through a personal loan, you may only have to deal with one payment instead of doing multiple payments. A single payment means you could only have to remember one date and amount to pay every month instead of several dates and minimums across multiple credit cards. That could make your debt manageable.
Fixed-rate
When you have a variable-rate credit card, your interest rate changes along with the prime rate. That means the monthly payment and amount of interest you pay on your balance can increase or decrease per your credit card agreement. A fixed-rate and monthly payment that is lower than your existing credit accounts could help you pay off your debt quickly.
Fixed loan term
Personal loans typically have a set term for repaying the loan, whereas credit cards are a form of revolving credit, where you can regulate how much you want to borrow and pay off every month as long as you make the payment. And if you only make the minimum payment every month, it can take even longer to pay off your credit card balance. Having a fixed repayment term with a set monthly payment could make it easier to manage to pay off your debts.
But, before you apply for a personal loan ensure that you understand the eligibility for a personal loan and check if it’s a good match for you. To calculate your personal loan EMI you can take the help of a personal loan EMI calculator and figure out the monthly payment on your loan. You also need to be comfortable making your new payment and be able to demonstrate that you are capable to make the payment. It’s also best to avoid borrowing more than you can afford to repay.
