Last Update: December 05, 2022, 11:17 AM IST
Personal loans usually have lower interest rates than credit cards.
If you take out personal loans to pay off your credit cards and then start using them with the balance, you are accruing additional debt.
One of the most common uses of personal loans — other than paying off medical debt or buying an RV — is to consolidate credit card debt. Applying for a personal loan can be beneficial if you want to pay off your debt faster than paying the minimum amount with a credit card each month. However, personal loans have both disadvantages and advantages. Let us know how paying credit card bills with a personal loan can affect your finances.
the gain:
The average interest rate for personal loans is less than 10%. If you have a good credit rating, it will work to your advantage. Thus, you will end up paying off your loan quicker and reduce the total amount of interest you pay by half.
You can combine your credit card payments into one monthly payment on a personal loan. Reducing the number of payments leaves more time and room for other obligations.
The 10% of your score that is made up of your credit mix is increased by availing a personal loan. By having a variety of loans and credits, you can demonstrate to lenders and creditors that you are responsible with money.
Harm:
If you take a personal loan to pay off credit card bills, you are borrowing more money. If you take out personal loans to pay off your credit cards and then start using them with the balance, you are accruing additional debt.
Personal loans usually have lower interest rates than credit cards. If you have a low credit rating, you might not get approved for a personal loan. If you have poor credit and get approved for a personal loan, your interest rate may be higher.
Some lenders charge a variety of costs, such as late payment, origination and insufficient funds fees.
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