Should You Pay All Your Credit Card Debt With A Personal Loan?

Credit cards have become an integral part of modern life. It is a highly useful tool for making payments and can earn you significant benefits in the form of reward points, access to airport lounge and several other perks. However, it is equally important to be mindful of your responsibilities while using a credit card. One such responsibility is clearing your dues on time.

Many people get burdened by the debt they incur by using their credit cards. Late payments are penalised in the form of additional interest charges and fines. In such a scenario, those who are burdened by the debt look for ways to clear their dues. One option that is often considered is taking a personal loan to pay the credit card debt.

But is it the right method to clear debt? We have tried to answer this below.

• Lower Rate of Interest

A personal loan usually comes with a lower rate of interest than that charged on a credit card. By comparing the interest rate on different loans with the interest charged on your credit card, you can calculate the amount of savings you can generate by taking a personal loan to clear the debt.

• Consolidation of Debt

A personal loan comes with a definite repayment period, whereas credit card debt can continue endlessly. Further, managing debts on multiple credit cards can be extremely challenging, raising the chances of missing a payment date. By taking a personal loan to clear your credit card debts, you effectively consolidate multiple loans into a single loan, thus making it much easier to track and manage payments.

• Improve Credit Score

You can improve your credit score by clearing all your credit card debt. Once you repay the loan timely as well, you will further enhance your credit score. The improved credit score will help tremendously the next time you apply for a loan or a credit card. 

• Credit Score

If you are already burdened by significant credit card debt, you likely have a low credit score. This can hurt your chances of getting a personal loan to clear your debt. 

• Repayment Period

If you apply for a long-term personal loan, you will have to continue clearing the EMIs for a long period of time. This will affect your finances in the long run.

• Closure Of Credit Card

After you have cleared your credit card debt, you may consider closing the credit card. However, this can hurt your credit score negatively by increasing your credit utilisation ratio. 

To conclude, the ideal scenario is to be in a situation where you are not left facing a mountain of debt. It is important to check your buying patterns and learn to utilise a credit card judiciously. While taking a personal loan to clear credit card debts can be a one-time solution, the long-term solution lies in improving your financial judgment.