Should I Use a Personal Loan to Pay Off My Debt?
Higher inflation rates have meant inflated interest rates on credit card debt, making it nearly impossible to make a dent in account balances. When credit card debt has become too much to manage, you might wonder what options are available without having to resort to extreme measures. One of the more popular options is using a personal loan to pay off your credit card debt.
How Can I Use a Personal Loan to Pay Off My Debt?
Paying your debt with a loan is fairly simple. First, you should look into personal loans available to you based on your credit score. There are a few important things to note when looking at your loan offers.
Loan Amount
This is the amount of money you are borrowing from the lender. This does not include the interest you will pay over time to finance the loan.
Loan Rate
This is the annual percentage rate (APR), which includes your interest rate, plus any loan fees. Your APR for the personal loan will likely be smaller than your credit card APR.
Loan Term
This is the amount of time you will have to repay the loan, usually 2-7 years.
Fees
Some loans come with an origination fee, an upfront fee that the lender charges to process the loan. You should also be aware of other fees, like late payment fees, before deciding on a lender.
Monthly Payment
This is the amount you will be responsible for paying monthly. You should be certain that you can afford this monthly payment before moving forward with the loan application.
Once you find a loan with terms that you approve of, you can apply for it. You should be notified immediately whether you are approved. Since this is a loan, it will be counted as a hard inquiry on your credit report so you should prepare for a minor dip in your score. On the other hand, once you pay off debt, your credit utilization rate will improve drastically so that should improve your score.
Once you’re approved, the lender will typically send you the money within a day to a week if you opt for direct deposit. Receiving a paper check will take longer. If you notify your lender that you are using the loan for debt consolidation, they may give you the option to send the funds directly to your other creditors. This is the best option if you’re serious about using the funds for debt repayment only.
Debt Relief for Those Considering Debt Consolidation
There are other options for paying off debt if you do not want to get a loan. Balance transfer cards are one option that includes a 0% APR for a limited time, usually 6-18 months. They do often come with balance transfer fees, which would be similar to an origination fee for a loan. You would also be limited to transferring a little less than the new card’s limit. That said, a loan can offer a payoff option for larger sums of debt. If you don’t want to take on any new accounts, it might be better to work with a debt relief company like Debtmerica Relief. If you need help with debt, give Debtmerica a call at 800-470-8155 for a free consultation.
