Should you take out a loan to pay off your credit card debt?
It's no secret that the average American is in a lot of debt. In fact, according to a study by NerdWallet, the average U.S. household owes more than $6,000 in credit card debt alone. So it's understandable that when people find themselves in this situation, they may have considered taking out a loan to pay.
How do you know if you should take out a loan to pay off your credit card debt?
The decision to take out a loan to pay off debt can be difficult. On the one hand, you may be intrigued by the lower interest rate offered by a personal loan. But, on the other hand, you need to make sure you can afford the monthly payments.
Before making a decision, it's essential to sit down and look at your finances. First, list all your debts, including credit cards, medical bills, and other outstanding loans. Then, look at your income and expenses to see if you can afford the monthly payments. Finally, you may need to consider other options, such as debt consolidation or credit counseling.
What are the benefits?
There are a few benefits to taking out a loan to pay off debt. First, you may be able to get a lower interest rate on a personal loan than you're currently paying on your credit card debt. This can save you money in the long run. Second, by consolidating your debt into one monthly payment, you may find it easier to stay on top of your payments and get out of debt sooner.
There are many different options available to consumers when it comes to debt. For example, it may make sense to take out a loan to pay off credit card debt.
Benefit 1: You can save money on interest payments
When you take out a loan to pay off your credit card debt, you're essentially consolidating your debt into one monthly payment. This consolidation can be helpful because you'll be paying less in interest than you would if you continued to make minimum payments on your credit card.
Benefit 2: You can get out of debt faster
Another advantage of taking out a loan to pay off your credit card debt is getting out of debt faster. In addition, by consolidating your debt into one monthly payment, you'll focus on paying off your debt rather than keeping track of multiple expenses.
What are the risks?
The dangers of taking out a loan to pay off debt can be significant. You may end up in even more debt than when you started. If you can't afford the monthly payments on the loan, you may find yourself struggling to keep up with your debt payments.
Risk 1: You could end up paying more in interest
One of the risks of taking out a loan to pay off your credit card debt is paying more in interest. Although personal loans typically have lower interest rates than credit cards, they often have shorter repayment terms. Shorter repayment terms mean that you may end up paying higher monthly payments over the life of the loan.
Risk 2: You could end up deeper in debt
Another risk of taking out a loan to pay off your credit card debt is closing up deeper. In addition, If you cannot make your loan payments, you may default on your loan.
Risk 3: You could damage your credit score
Another risk is that you could damage your credit score by taking out a loan. If you miss payments or default on a loan, your credit score will suffer. In addition, a low credit score can make it challenging to get approved for loans or new lines of credit in the future.
Key Take-Aways
There are many different options available to consumers when it comes to debt. It may make sense to take out a loan to pay off credit card debt in some cases. There are several benefits of taking out a loan to pay off your debt, including saving money on interest payments and getting out of debt faster. However, there are also risks, such as paying more in interest or defaulting on your loan. Before deciding, it's essential to sit down and look at your finances to see if taking out a loan is the right choice.
If you decide a personal loan is right for you: Upstart is an online lending platform that partners with banks to provide personal loans from $1,000-$50,000. Upstart goes beyond traditional lending metrics to help you find financing that considers many factors, including your education and experience. 99% of personal loan funds are sent just 1 business day after signing.