Is a Loan to Pay Off Credit Cards Right for You?

People take out personal loans for many different reasons, such as paying for home and auto expenses, catching up on bills, paying for holiday gifts, or taking a trip. However, you can also get a personal loan to pay off credit card debt to simplify your financial situation. This might be a good option if you’re looking to pay off your debt faster, get better an interest rate, and consolidate monthly payments.

In this blog, the loan experts at Tower Loan explain whether using a personal loan to pay off credit card debt is a good decision for your financial situation and how to get a loan to pay off credit cards.

What is Debt Consolidation?

Debt consolidation is a strategy that combines more than one debt into a single account or loan. For example, multiple credit cards can be combined into a single line of credit or loan to reduce the number of monthly payments due.

There are different types of debt consolidation to explore, such as personal loans to pay off credit cards, home equity loans, direct consolidation loans, and credit card balance transfers. As long as you understand the potential risks involved, a personal loan to pay off credit card debt can be a viable option for improving your financial situation.

How Personal Loans Work

If you’re looking to pay off credit card debt quickly, it may be worth taking out a personal loan for consolidation. This strategy makes your monthly bills simpler and easier to keep up with while helping you pay them faster and not having to making larger payments.

Personal loans are lump sums with fixed monthly payments. Interest rates are determined by credit scores, so you may pay a higher rate if you have a low credit score or a lower rate if you have a high credit score.

Interest accrues according to the remaining principle, which means interest accrued will lessen over time as you pay off the total balance. Payments you make go towards the principal and interest, which is dictated by an amortization schedule that keeps payment amounts consistent but balances out the principal/interest ratio.

Benefits of Using a Personal Loan to Pay Off Credit Card Debt

Even if you have never taken out a personal loan before, now might be the right time to do so if you have mounting credit card debt that doesn’t seem to go down even though you are working hard to pay it off monthly.

Here are some advantages of using a personal loan to pay off credit card debt.

Lower Interest Rates

There are many benefits to getting a personal loan to pay off a credit card, starting with lower interest rates. Personal loans often have lower interest rates than credit cards, so you’ll save money on paying interest each month.

Streamlined Payments

A loan to pay off credit cards also streamlines your payments by having just one convenient monthly payment instead of multiple payments to keep track of. It’s easy to get tangled in a web of bills piling up, and personal loans offer a way to get out of that cycle of stress and overwhelm.

Credit Score Improvement

Getting a loan to pay off credit cards may improve your credit score because personal loans diversify your credit mix and lower your credit utilization. With a higher credit score, you will gain more purchasing power and perhaps be in a better position to afford a home, car, or other major purchase in the future.

Faster Debt Repayment

Many people can pay off their debt faster with a personal loan than by making monthly credit card payments. This is because it is common to only make the minimum credit card payments each month, which could take a very long time to pay back in full.

Drawbacks of Using a Personal Loan to Pay Off Credit Card Debt

However, you should be aware of some downsides of using a personal loan to pay off a credit card before completing a loan application. We believe it is important to learn about the potential drawbacks so that you can make a financially sound decision about how to handle your debt.

Potential for More Debt

Accumulating more debt is associated with a certain risk if you aren’t in control of your spending habits. Reducing or modifying your spending may be crucial so that taking on a new loan does not send you further down a debt spiral.

Not Guaranteed a Lower Interest Rate

People with poor credit may not be able to get a better rate with a personal loan than their existing credit cards. This is because the interest rate you’re offered with a loan depends upon your credit history and financial situation.

Fees and Costs

Lenders often incorporate fees and costs into their personal loans, such as origination and late payment fees. Loan terms, rates, and origination fees depend on your state. State laws and applicants’ financial details dictate special interest rates and fees.

How to Get a Personal Loan for Debt Consolidation

The process of getting a personal loan to pay off credit card debt is fast and straightforward and if you work with an experienced, reputable lender like Tower Loan. We recommend going through the following steps and asking questions from your lender throughout the loan process so that you fully understand your obligations and benefits.

Review Your Credit Score

Before you apply for a personal loan to pay off credit card debt, check your credit score and credit report. Now is the time to correct any errors that may exist that you weren’t previously aware of but that could affect your loan approval.

Compare Multiple Lenders

It is also a good idea to shop around for the best rates and terms with multiple lenders to get the optimal deal for your financial situation. Tower Loan’s personal installment loans have much lower interest rates than credit card loans and other types of loans, and we offer the best rates that consumers can qualify for.

Our financial specialists take the time to work with you to find the best options available based on your personal situation. Since we offer online loans, you can expedite the process and get your loan to pay off credit cards much quicker than you might expect.

Check Total Costs

Once you’ve compared a few rates, pull out your calculator to compare the total cost of your current credit card debt with your potential personal loan. When you conduct a side-by-side comparison, the numbers might surprise you. So, it’s worth taking the time to do this step and understand where and how you can save money.

Apply with the Best Lender

When you choose a lender to go with, ensure you fully comprehend the application process and documents needed. The essential personal loan application documents include photo identification, the loan application, proof of income and proof of address. Lenders will also need to know how much money you want to borrow, how much you can afford to borrow, when you expect to repay the loan in full, and your credit score.

Tower Loan aims to make the personal loan application process as quick and simple as possible. You can complete your application online or visit a branch location in person to meet with a loan specialist. We’ll collect your personal, employment, and financial information to give you an immediate decision on your loan application.

If you completed your application online, you may be able to verify your identity remotely. You can also provide identity verification documents at a Tower Loan office near you, where you can discuss your loan options and determine whether collateral is needed to secure your loan.

Receive and Repay Loan Funds

Once you are approved for funding through Tower Loan, you need only sign your documents electronically and watch for your money to be deposited into your account. You can also review and sign your loan documents in a local branch office and receive a paper check with your loan proceeds.

We recommend setting up autopay so that you don’t accidentally forget to make payments on your new loan and have one less thing to think about each month.

Alternatives to Using a Personal Loan for Debt Consolidation

At Tower Loan, we have helped many people throughout Alabama, Illinois, Louisiana, Mississippi, Missouri, and Texas get the loans they need to pay for car repairs, home upgrades, medical bills, credit card debt, and more. However, there are alternatives to personal loans to consider if you are on the fence about whether credit card debt consolidation is the right move.

Balance Transfer Credit Cards

Another option is to apply for a new credit card that lets you transfer balances from other credit cards over to it. This option is viable if the latest credit card has a lower interest rate and you qualify for a 0% APR balance transfer. This means you don’t have to pay extra interest, allowing you to pay down your balance faster.

If you go this route, look for a balance transfer credit card with no balance transfer fee. Some companies will consider waiving this fee even if they list one on their website. Also, look for a new credit card that offers special perks, such as cash back for using the new card or travel deals.

However, if you don’t pay off the entire balance by the end of a designated promotional period, you will likely end up paying interest fees in the long run. Promotional offers only last for a limited time, and interest will start to add up again once it’s over.

Also, make sure any new card you sign up for has a credit limit that is high enough for your debt balance to transfer over so that you aren’t stuck with new and old cards that all have remaining balances.

Debt Snowball and Debt Avalanche Methods

Another alternative to a personal loan to pay off credit cards is to focus your attention on just one card at a time. The snowball method involves paying off your smallest debts first, while the avalanche method involves knocking out your largest debts before going back to your smallest ones.

These methods are effective in not adding to your existing debt burden and staying focused on certain debts to avoid financial overwhelm. With the avalanche method, you’ll first pay off your highest interest-rate debt to save more money in the long term. If you crave more instant gratification with your debt payoff, the snowball method will help you streamline your payments by eliminating small burdens.

However, each of these methods will take some time to accomplish, and they might not work well if your budget is already strained and you don’t have the capacity to commit to paying more than you already are.

Tips for Successful Debt Consolidation

Using a loan to pay off a credit card isn’t the best option for everyone, but for many people, it can mean the difference between being financially overwhelmed and successfully managing debt.

Here are some final tips to help you make the right choice.

Create a Budget

Financial experts recommend that everyone create a budget, no matter how much money they make or how much debt they’re in. Consider ways to trim your budget, pick up a side hustle, and change your mindset about money and what you need and want.

Avoid New Debt

When you take out a loan to pay off credit cards, avoid taking on any new debt of any kind, if possible. Unnecessarily purchasing more than you can afford could negate the benefits of taking out a personal loan to pay off a credit card and set you back even further financially.

Seek Financial Advice

After learning more about the pros and cons of a personal loan to pay off credit card debt, it’s time to ask a professional if you still aren’t sure what the right decision is. Consult with a financial advisor for personalized advice and get specific recommendations about reducing your debt and working towards living a debt-free life.

If you’re ready to take out a loan to pay off credit cards, Tower Loan is here to help. To get started, please tell us about yourself to see estimated rates. If you want a loan over $6,000, please visit a branch office.

We look forward to answering all your questions and helping you work through credit card debt.