Paying off credit card debt can seem like a never-ending stream of monthly payments that you know could be better off on other things.
Americans pay $104 billion in credit card interest and fees. That’s a bigger reason why people are turning to debt consolidation loans to pay down their debts.
Before you take out one of these loans, you want to make sure that you’re putting yourself in a much better position financially than before.
Is a loan the way to go to pay off your credit cards? Read on to find out.
Assess Your Financial Situation
The key to making sure that your loan is a smart move is to take a look at your entire debt situation. This is the step by step process that you should look at to see if a loan is a smart move to make when paying off credit card debt.
1. Look at Your Monthly Payments & Balances
The very first move you need to make is to see how much you’re really spending on credit card debt every month. You want to make sure that the loan you take out will result in lower monthly payments. If you do take out an installment loan to pay off some debt, your new monthly payments may be less but added with the interest from the loan may make it way more.
2. What’s Your Interest Rate?
The average interest rate for credit cards is about 16%. Yours may be as high as 29%, in which case, a personal loan would make sense.
3. How Much More to Pay Off Balances
You also want to assess how much more time it’s going to take to pay off your debt. If you find that you have about 9 payments left before you pay off your credit card balances, you have to ask yourself if it makes sense to take out a new loan for 36 months, even though the monthly payments would be lower.
4. Know Your Credit Score
Your current credit score is going to play a part in deciding if taking out a loan is the best move to pay down your debt. Fortunately, personal loans usually have a much lower interest rate than credit cards, which is a big reason why you can use them to pay off debt.
Your credit score will determine what your interest rate is on your loan. You want to make sure that it’s as high as possible to take advantage of a lower interest rate.
What Kind of Loans Can You Get?
Once you assess your financial situation, you’ll want to see what kind of loan you can get. Before you apply to a bunch of loans, you want to see if they do a soft credit check or a hard credit check. A hard credit check could lower your credit score by a few points.
Paying Off Credit Card Debt with a Personal Loan
Credit card debt is a financial black hole for many people. It can be an endless cycle of debt, expensive monthly payments, and high interest rates.
Paying off credit card debt can be as simple as taking out a loan to consolidate those bills into one monthly payment.
Would you like to find out more about personal loans?
Here are some other interesting articles: