We’ve all been there, you put some purchases on your credit card for the points or miles. Next thing you know you have an unexpected car repair, or family vacation that you de
cide to put on your credit card as well. Before you know it, your balance is higher than you ever desired it to be, and you don’t have enough money in your checking account to payoff the balance.
The dreaded revolving balance
A revolving credit card balance is great for the credit card companies. They actively seek out applicants who they rate as the most likely to continue to carry a balance from month to month. The reason is simple: they make money on fees when you don’t pay off your balance. What’s worse, these fees accrue daily based on the amount you and it can take a very long time to payoff if you only make the minimum payment.
Why a personal loan makes sense
Enter the Personal Loan. Personal loans are a great way to payoff your high-interest credit card debt. You can search for a personal loan easily online, and you can have the funds deposited into your bank account as soon as the next business day. Personal loans have become a common financial instrument to consolidate numerous high interest credit card balances and varying minimum payment into one consistent, fixed monthly payment. Consolidating your credit card bills with a personal loan will save you money, because there is a fixed term that the loan is paid off over. There is no concept of paying minimum credit card payments and lining the pockets of the major credit card companies who are perfectly happy letting you take 10+ years to payoff a credit card.
With a personal loan, you can often choose from a 2-7 year term. Your loan payments will be spread out over the term, so the longer the term the lower the monthly payment. This also generally ads to the perceived risk of the loan (more time for something to go wrong) so you will often pay a higher APR for a longer term loan. There are no prepayment penalties however, which allows you to payoff the loan early if you ever have the means to do so.
Lenders will give you a better rate if you consolidate your debt
Personal loan companies have started to realize that their best customers are the ones who payoff credit card debt. Roughly 75% of all personal loans are used to payoff debts. If you want to payoff credit card debt, you can actually get a reduced interest rate if you use the proceeds, and through the lender, payoff your credit card debt. You’ll generally need to collect your credit card account numbers and provide them so that the proceeds can be directly applied to the credit card debt. Look for companies such as Payoff, Marcus, and Upgrade who provide discounts for direct disbursement loans that pay straight to your credit card debt.
After you payoff your credit card debt, it’s time to make sure you can make your monthly personal loan payments. This may take you some budgeting, but you have to make good on your loan payments which will help build your credit score since lenders report positive payments on your credit report. Overall, a personal loan can help you a great deal if you are responsible but have found yourself in more credit card debt than you ever want to, and you’re ready for a positive change in your financial situation.