It’s a matter of making your debt more affordable.
- Credit cards are known to charge a lot of interest.
- Personal loan interest rates can be much more affordable, especially if you have good credit.
Many people end up with credit card debt for one reason or another. For some, it’s about meeting emergency expenses. For others, it’s about losing track of spending.
Regardless of why you incurred credit card debt, your goal should be the same: to get rid of that debt as quickly as possible to minimize the amount of interest you accrue on it. But one tactic you might want to use to pay off your credit cards is to take out a personal loan and use the proceeds from that loan to wipe out your balance. Here’s why it’s a smart move to make, even if it means swapping one type of debt for another.
A personal loan could cost you less
A personal loan lets you borrow money for any reason, just like you can use a credit card to charge for a host of expenses, from groceries to car repairs to medical bills. For example, you can use proceeds from a personal loan to pay off a credit card balance.
Find out: These personal loans are the best for debt consolidation
More: Prequalify for a personal loan without affecting your credit score
But one of the advantages of a personal loan over credit cards is that these loans tend to charge much less interest. And it could make your debt much cheaper to pay off.
Say you owe money on a credit card at 18% interest. You may qualify for a personal loan at 8% interest. And the lower your interest rate, the less money you spend.
Also, if you have a very high credit rating, you might be able to get a very affordable rate on a personal loan. Additionally, personal loans come with fixed interest rates, while credit cards tend to come with variable interest rates. This means the rate you lock in when you sign your personal loan is guaranteed to stay the same until your debt is paid off.
With a credit card, variable interest could cause you to pay more and more interest as your debt is carried over. The result? A harder time paying off your debt and more wasted money.
How to qualify for a personal loan
Personal loans are unsecured, meaning they are not tied to any specific asset that you have put up as collateral. As such, you will generally need decent credit to qualify for a personal loan.
Now there are personal lenders working with low credit applicants. But if this is the situation you find yourself in, you will need to see what interest rates are available to you. With bad credit, the borrowing rate you get on a personal loan may not be much better than what you pay on your credit cards. In some cases, it might even be less favorable.
That said, if you’re able to get a personal loan rate comparable to what your credit cards are currently charging, it might be beneficial to lock in that loan, because that way your interest rate will be at least fixed. . With a credit card, you run the risk of your interest rate going up.
All told, paying off your credit cards with a personal loan could be a smart bet. It pays to shop around and see what personal loan rates you qualify for.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.