Benefits of Paying Off Your Credit Card Debt with a Personal Loan
While using a personal loan for credit card debt is only one option, it does offer several benefits.
Easy online applications
Many personal loan lenders offer quick loan online applications, and you can often get prequalified and review your offers with only a soft credit check—the type that doesn’t hurt your credit score.
In contrast, you won’t know your credit limit or if you’re approved for a balance transfer card or new credit card until after you submit an application and agree to a hard inquiry, which can cause a dip in your credit score.
Fixed interest rates and repayment periods
Personal loans often have a fixed interest rate, and you may be able to pick your repayment period before accepting a loan. In most cases, personal loan interest rates are lower than credit card interest rates, which can save you money and lead to paying down debt sooner. Plus, you can type: entry-hyperlink id: 53SYqBAp1rY9UizyYpG6dV, knowing that the monthly payment will never change.
Lower monthly payments
If you have multiple credit cards, the combined minimum payments could wind up being a major monthly expense. However, a personal loan can also function as a debt consolidation loan, and you can use the funds to pay off multiple credit card accounts. Depending on the interest rate and repayment term, you could wind up with a lower monthly payment, which will free up money in your budget for other expenses.
Improved credit scores
Your credit card’s balance relative to its credit limit can be an important factor in determining your credit scores, and the lower your credit utilization rate the better. While your outstanding debt on a loan is also a scoring factor, it’s generally not as important as the revolving credit utilization rate. As a result, paying down credit card balances with a personal loan could improve your credit score.