Why use a loan to pay off credit cards?
If you have a lot of high interest credit cards, you can rack up debt much more quickly if you don’t pay off the entire monthly balance, which might hold you back from building a solid financial future. If you’re in this situation, using a loan to pay off credit card debt can help.
How do I use a loan to pay off credit card debt?
Instead of owing money on multiple credit cards, you take the total amount owed among all the cards, consolidate that debt into a single loan amount to pay off the credit cards, which is known as a personal loan. By doing this, you would then start making payments toward one single personal loan instead of payments to multiple cards. The idea would be that the rate on the balance of your personal loan would be lower than the combined rates on the balances of several credit cards.
Is using a personal loan to pay off credit cards right for you?
Whether paying off your credit card debt through a personal loan is right for you is based entirely on your circumstances. If you lack credit history or don’t have good credit, it might not be the best option and you might not qualify for what lenders have to offer. Like other loans, having a good credit score or longer credit history may help you secure a competitive rate on a personal loan.
If you are qualified, paying off credit debt with a personal loan has a number of advantages. For one thing, consolidating or refinancing debt can simplify your payment plan, turning multiple bills into one monthly payment. Taking out a personal loan to pay off debt can be a great way to take advantage of lower interest rates, which can save you money. As long as you’re meeting monthly payments and borrowing with a lender you trust, personal loans can be an excellent way to manage your debt.
Benefits of Taking out a Loan to Pay off Credit Cards
Debt consolidation loans can be particularly useful for paying off debt on multiple credit cards and it’s easy to see why. Making a repayment to a single lender every month can reduce the chances of missing your payments on time, and some credit card interest rates can vary, sometimes reaching as high as 29.9% APR, if you miss payments. If you want to understand how much interest you will be paying, use our Credit Card Interest Calculator.
Personal loans, meanwhile, can be found at a lower interest rate. When you take out a personal loan it can be used for any general consumer/household purpose; theoretically, you could use one to buy anything from a wedding to an elephant (although good luck finding a low APR on that one). In the case of using a personal loan to pay off credit cards, it’s used explicitly to consolidate your debt.
Before Taking out a Loan to Pay off Credit Cards, Do This First
When considering a personal loan, a good way to start could be by making a chart of your debts and their respective interest rates, and calculate how long it will take you to become debt-free. Then compare it to your financial plan with a personal loan, and see which is better for your budget. It’s all about your priorities, whether it’s simply peace of mind in the form of one monthly bill, or saving the maximum amount of money. No matter what, the important thing is to make an intentional step toward tackling your debt. With a little creativity and discipline, you can manage your debt without letting it slow your financial plans for the future.
With SoFi, you can consolidate your high interest debt into one single personal loan, with loan amounts between $5,000 to $100,000 and fixed interest rates with no origination fees or prepayment penalties. Find out what rates you may qualify for.
SoFi Lending Corp. is Licensed by the Department of Business Oversight under the California Financing Law, license number 6054612.