A personal loan can be your fast track to regaining financial freedom. No more will you be at the mercy of creditor’s whims while juggling payments to them and trying to make ends meet at the same time. While a credit card allows one the luxury of owing money without giving a sense of how much, a personal loan is a clear indicator of how much you owe. This will allow you to plan your finances better, thus making it easier for you to get out of debt.
Nowadays, if you already have an outstanding credit card debt, you have options to choose from. You can either transfer it to a new credit card, which is also called balance transfer. Or, if you feel that credit cards are not the best option to meet your spending needs in the future, then you can consider switching to a personal loan. Does it make sense to convert your credit card debt to a personal loan?
The pros and cons of switching from a credit card to a personal loan
The significant advantage of a personal loan is that it has longer tenure. A credit card loan has a maximum period of one year. Personal loans also give scope for more flexible repayment. You can pay it off in monthly installments instead of keeping it to a fixed date. Thus, any borrower can plan and know how much his monthly payments will be
A personal loan can also be a more flexible means of borrowing as compared to a credit card. In most cases, the borrower can decide how much money he needs and for what purpose. On the other hand, a credit card is restricted to a certain amount of money that is pre-approved by the bank. Finanza can tell you more about this issue.
While a personal loan is not a substitute for a credit card, it can work well in conjunction with your cards. Many banks also offer instant credit card pre-approval to obtain a personal loan. When you receive such credit, you can always use it to help you get the best balance transfer deals from your existing bank and consolidate them under one EMI cycle.
Creditworthiness plays a much more significant role in such a transaction, and if you do not have a good credit rating, chances are you will be asked to pay a much steeper fee. Also, while taking a personal loan against your card, the interest rate may not be as good as what is being offered on the card. The bank or institution from which you take a personal loan will charge a fee for setting up the same. However, the interest rates may be cheaper than those offered by Bank Cards.
Are you better off with a personal loan?
Shop around for the best interest rate possible. Personal loans are unsecured loans like credit card debt but allow you to make some choices. For instance, you can decide to fix the loan tenure or take advantage of a flexible installment schedule.
Borrowing money to consolidate credit card debt makes sense only if the personal loan you are opting for is less expensive than your credit card payments. The interest rate charged on the personal loan should also be lower if you have a good credit score. So, before signing up, it’s essential to evaluate all your options and choose the one that helps you reduce your monthly outgo without damaging your credit scores.
Opt for a personal loan if you are stuck in credit card debt. It allows you to consolidate your outstanding debt, hence having only one monthly payment. Having only one payment is helpful, especially for people on a fixed income. A personal loan allows you to choose how to pay off the debt, whether by lump sum or in installments. It also requires a low-interest rate compared to credit cards which can help you save money on interest payments.