• Should you take on a personal loan to pay off your credit card debt?

    Credit cards are a great way to manage your expenses, but if not managed effectively, can lead you down a path of debt. If left unchecked, credit card dues can become an insurmountable debt. One effective way of clearing off credit card dues is by consolidating them with a personal loan. Let’s look at the way a personal loan works and how can it be beneficial for clearing credit card debt.

    Benefits of taking a personal loan to pay off credit card debt

    The following are the benefits of opting to take a personal loan to clear your credit card debt:

    1. Fixed and lower interest rates:

      Personal loans generally come with a fixed and lower rate of interests than that of a credit card. Even if the difference between the interest rates of the two is small, the difference between aggregate interests paid with the two will be high. But you should also keep in mind that the interest rate available with personal loans depends upon your credit score. So it is recommended to keep a good credit score before you opt to apply for a personal loan to clear credit card debt.

    2. Debt consolidation and single payment:

      By taking a personal loan to pay off the credit card debt, you get a sense of financial ease when it comes to managing your expenses. You can consolidate the total debt and pay for it in single payment. This helps you organise the bill payment better and helps you track on your financial expenses.

    3. Flexible tenures and easy instalments:

      Personal loans come with an option of choosing a tenure from a flexible range of tenures. You can choose a repayment tenure and monthly repayment instalment according to your repayment capacity. This helps you plan the repayment and get financial flexibility.

    4. Simpler and faster pay-off:

      Credit cards don’t come with a set and dedicated period of repayment. But the same is not the case with a personal loan. By choosing a personal loan with a repayment period that suits your financial needs, you can clear off credit card debt faster. Personal loans come in handy when the credit card debt is high and paying just the minimum monthly instalment doesn’t serve the purpose.

    5. Maximise savings:

      As we discussed, credit card debt repayment doesn’t come with a set period while a personal loan comes in handy and helps you clear off the debt in a relatively faster and easier way. This also helps you pay lower net interest on the debt and helps you maximise your savings.

    What you need to consider before taking a personal loan to pay off credit card debt?

    1. Chances of paying a higher interest:

      Before you apply for a personal loan to clear the credit card debt, you must keep in mind that you must have a good credit score or you will end up paying more than you were initially supposed to pay. If you don’t have a good credit score or have not been punctual with the repayment of credit cards, you might be provided with a personal loan with relatively higher interest rates.

    2. Lack of flexibility in repayment:

      Though personal loans provide you with an ease of mind with a fixed and lower interest, it’s still sometimes not the most flexible way to clear your credit card debt. Personal loans don’t come with a facility of minimum payment. You must pay the monthly instalment in full. In cases where you don’t make the full payment, you will be charged a late payment fees.

    3. Lending amount cap:

      Personal loans generally come with a cap on the lending amount. The approved amount of the personal loan depends upon your credit score and your repayment capacity making it difficult to apply for if you have to consolidate multiple credit card dues that run over RM100,000.

    4. Fees and charges:

      You must also keep in mind that shifting your credit card debt to a personal loan comes with certain charges as well. A personal loan comes with a list of fees and charges like prepayment charges, processing fee, disbursement fee, stamp duties, insurance coverage, and many more.

    5. Longer tenures and more payment:

      The personal loan with higher amount and longer tenure may provide you with an ease of mind with affordable monthly instalments, but it has some drawbacks too. The longer the repayment tenure is, the more you end up paying on interest.

    You should opt for a personal loan only after thoroughly weighing the pros and cons. Always opt for an amount you can pay back with ease and opt for the most affordable loan. Ensure you are regular with your payments to avoid racking up debt.

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