Should You Move Credit Card Debt To A Personal Loan?
A credit card provides easy access to credit, with a lot of flexibility and reward points in the manner one can spend. Problem arises when the user overspends on one or more credit cards and may not have consolidated means to repay the dues. So, what should an individual, who has overspent and is now trapped in the credit card debt, do?
There are various ways to tackle this situation. Depending upon the card, a user can get the outstanding converted into equated monthly installments and transfer the balance to a new card. A still better option could be to take a personal loan to repay the debt.
If a customer’s debt on credit cards is unmanageable and is spread across two or more cards, it is better to get a personal loan and repay the debt. It allows a customer to consolidate different debts and offers a window to stagger the repayment over a prolonged period.
Pros Of A Personal Loan
Debt consolidation is one of the most common reasons for availing a personal loan. When an individual runs up a balance on credit cards, it can be difficult to manage the bills. People who refinance high-interest credit card debt can save money with a lower rate on personal loans.Low Interest Rate:
A personal loan can save on interest. The rate of interest on credit cards can climb as high as 35-45% per annum. On the other hand, a personal loan can be availed for half the interest rate.Repaying Debt On Multiple Cards:
If a borrower has outstanding balances from more than one credit card, a personal loan can help pay off all such debts. This would allow the borrower to care only about one EMI as opposed to several due dates and multiple payment amounts.Releasing The Credit Card Balance:
Paying off the credit card dues with a personal loan will free up the balance on the card, allowing the customer to use the credit card once again.Cons Of A Personal Loan
It is important for a customer to treat a personal loan as the means to an end. The customer must also keep a few other points in mind before availing a loan.Personal Loans Could Lead To More Debt:
Paying off credit card debt with a personal loan would free up the credit card and so an unchecked spending pattern may lead to more debt.Lower Interest Rate Not Guaranteed:
The rate of interest on a personal loan varies from one lender to another, and also on the credit score of an individual. Hence, one must assess the interest rate offered by banks and rate charged on the credit card before paying the dues.Fee On Personal Loans:
A personal loan would typically come with a processing fee, application fee, and pre-payment charges. So, a customer must assess the final savings.Hit On The Credit Score:
Defaulting on a personal loan repayment may hit the credit score more badly than simply paying off the minimum dues on the credit cards.Conclusion
Using a personal loan to pay off the credit card debt is only moving the money around. The debt is still there. However, it might still be a pile of debt with better terms for the customer.
If a customer can save money by restructuring the credit card debt with a personal loan, either by cutting down the monthly payments or by lowering the interest rates, it is probably a good idea to transfer the debt.
Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.
