Credit cards are both a blessing and a curse. On one hand, they expand your purchasing power. On the other, you need to pay off the balance when it comes due. Paying off the bill every month is the best way to avoid being saddled with interest, but it’s not always possible. Add other purchases and the balance starts to climb. Interest compounds quickly when there are several credit cards that carry balances every month. Getting out from underneath the debt tends to get difficult, but a personal loan might be the answer. Following are some tips for using a personal loan to eliminate debt.
Compare the Interest Rates
If your credit cards have interest rates in the 18-to-24% APR range, you’re paying a lot to rent that money from the lender every month. An $85 purchase comes with around $5 of interest on the higher end of that interest rate range. Not paying this off and carrying a balance means the interest compounds, putting you further into debt. The issue is made worse when the interest rate is variable, meaning it fluctuates whenever the market interest rate changes, and you never know when your interest rate, and your payment, may spike.
A personal loan is everything a credit card is not. It has a single interest rate that gets fixed at the time the loan is initialized, and it’s usually at a much lower rate than the average credit card. This makes paying down the debt more predictable, stable, and finite in its duration. Avant, a personal loan lender, is an example of a lender who offers competitive interest on consolidation loans.
Make Every Effort to Pay Back the Loan
It takes fiscal discipline to take out a consolidation loan to pay off the credit cards and then avoid using the credit cards. The consolidation loan takes the debt off multiple cards and rolls it into one monthly payment. Those empty cards may sing a siren song of temptation to be used, especially for a coveted item.
Instead of giving in and using the card to buy something, ask yourself if you really need the item. If you find it’s a must-have, use the savings you realize from not paying multiple cards every month for the purchase. Don’t use your cards unless absolutely necessary. The idea is to short-circuit the impulses that created the high balances in the first place.
Examine the Terms of the Loan
It’s always a wise move to examine the terms of the loan, and a consolidation loan is no different. This is especially important if you decide to use an online lender. With an online loan application, a human being may not be immediately available to explain the terms and conditions, and you are on your own to learn about the penalties for early repayment (if any) and whether the interest rate fluctuates.
Getting out of credit card debt with a personal loan can lift the financial burden off your shoulders, simplify your bill paying process, and save you money, but only if you use it wisely. You must remember to stay away from your now empty cards, pay off your loan, and exercise restraint going forward so that another loan isn’t needed down the road.