How to Pay off Debt with a Personal Loan

If you find yourself spending more money than you have access to and falling deeper into debt, you’re not alone. Between home mortgages, auto loans, credit cards, and student loans, research shows that the average American’s debt is well over $100,000. Credit cards are the most common type of debt, and nearly half of Americans don’t pay their cards off monthly.

There are many solutions to the issue of how to pay off debt, but one idea to consider is getting a loan to pay off credit cards. In this article, we explore the topic of using a personal loan to pay off debt and discuss whether this might be the right option for your financial situation.

Personal Loans vs. Credit Cards and Other Loans

Before considering the idea of using a personal loan to pay off credit cards, it’s important to understand what a personal loan is and how it can affect you. There are distinct differences between personal loans and the credit cards you commonly use, plus various types of loans available.

• Personal loans: Installment debt that you pay off in fixed monthly amounts for a certain period of time
• Credit cards: Revolving debt that involves continuously borrowing more and with changing monthly amounts
• Home equity loans: Loans available when your home’s value is greater than your mortgage
• Auto loans: Banks and dealerships offer these loans to help you pay for a vehicle
• Student loans: Federal or private funding for higher education
• Vacation loans: A personal loan used for the purpose of travel

When a Personal Loan to Pay Off Debt Makes Sense

A personal loan to pay off debt might be the best solution for your financial issues right now. A loan to consolidate debt is a single loan that essentially involves trading one form of debt for another. Having just one bill to pay instead of many can simplify your life, help you keep up with payments, and take advantage of more affordable terms and interest rates.

Here are some reasons why a personal loan might make sense:

You’re Juggling Several Credit Cards with Different Payments and APRs

One reason getting a loan to pay off debt makes sense is if you have multiple credit cards, each with its own due dates, payment amounts, and interest rates. Keeping up with all of those details can be exhausting and set you up for missed payments and late fees.

You Can Get a Lower Interest Rate

You might also get a loan to consolidate debt if your credit score goes up and you qualify for better interest rates. Getting the best rates typically requires a score of 800 or higher, but even scores of around 670 can get you more competitive rates. In general, personal loans come with lower APRs than the average credit card.

You Can Get Lower Monthly Payments

It may also be a good idea to take out a personal loan if your overall monthly payment decreases from when you were previously struggling with high credit card debt. A lower monthly payment could mean more cash in your pocket with a repayment timeline that is long enough and a lower APR.

When a Loan to Consolidate Debt Doesn’t Make Sense

However, there are also circumstances where a personal loan does not make sense. Here are some reasons why you might avoid taking out a personal loan for credit card debt:

Your Amount of Debt Is Small

If you don’t have much credit card debt and feel confident that you can pay it off quickly, there may be no need to go through the process of taking out a loan to pay off debt. Perhaps the best option is to just stay the course with your monthly credit card payments and pay them off in a year or two.

You’re Unwilling to Change Your Spending

It’s also important to acknowledge your spending habits and be willing to adjust them for a secure financial future. Getting personal loan to pay off debt won’t change the way you spend money, so you could dig yourself deeper into debt if you don’t get a handle on your finances.

How to Pay Off Credit Card Debt in Other Ways

If any of these last examples apply to you and getting a personal loan to pay off debt doesn’t feel like the right decision, there are other options to consider:

• Rework your budget
• Focus on one debt at a time
• Make more than just the minimum payment
• Ask your credit card company about repayment plans
• Pay off debts from smallest to largest
• Or tackle your largest debt first
• Start using cash instead of credit cards
• See a credit counselor

Pros and Cons of Getting a Personal Loan to Pay Off Debt

Although everyone’s financial situation is unique, here are the pros and cons of using a loan to consolidate debt and taking out a loan to pay off credit cards:

Pros:

• Consolidate payments: Track just one payment rather than many to stay organized and on top of your obligations.
• Lower interest rates: Personal loans often have lower interest rates than many credit cards, saving you money over time.
• Predictable payments: With fixed interest rates over a specified period of time, personal loans offer predictability to help with budgeting and financial planning.
• Versatile funding: You can use a personal loan for credit card debt to pay for many things, versus an auto, student, or mortgage loan that must be applied to specific purposes.

Cons:

• Potentially higher payments: The lower interest rates that come with personal loans may result in monthly payments that are larger than your minimum credit card payments, ultimately reducing your monthly cash flow.
• Not a magical debt eraser: Loans to pay off credit card debt do not eliminate your debt. They repackage your debt into one simplified loan, but you still must control your future spending to avoid incurring additional debt.

What Lenders Look for in Personal Loan Applicants

Just because you apply for a loan to pay off credit cards doesn’t mean you’ll actually get one. Reputable lending companies consider many different factors before approving a prospective borrower for a loan.

These factors include:

• Credit score
• Debt-to-income ratio
• Employment history
• Whether or not you have filed for bankruptcy
• The value of your collateral (for secured loans)

If you have a stronger financial background, you’ll have a better chance of getting better terms and rates for your personal loan. Interest rates are based on a borrower’s financial history and give lenders confidence that you can and will be able to pay back your loan in installments each month.

A credit score is a factor in the approval process because it demonstrates how you have managed debt in the past and predicts how well you will be able to pay it off in the future. However, it is still worth applying for a personal loan if you have a lower credit score to see what you qualify for. Just keep in mind that higher loan amounts typically require a higher credit rating, and some lenders specialize in smaller or larger loans for their customers.

Another important consideration is your debt-to-income ratio, which shows lenders that you have the means to pay monthly payments. This figure is the monthly income that you will use to cover debt payments, so you’ll need to prove you have a steady source of income through pay stubs, tax records, or other financial information.

How to Get a Loan to Pay Off Debt

Tower Loan makes the process of obtaining loans to pay off credit card debt as simple and straightforward as possible. We have locations throughout Alabama, Illinois, Louisiana, Mississippi, Missouri, and Texas to help you get a handle on your credit cards.

Our lending process starts with completing your application online, or you can call or visit your local branch to apply over the phone or in person. After you provide the required personal, financial, and employment information, we will provide you with an immediate decision on your application.

To verify your information, you may be able to answer a few questions online to finalize the application process. However, some applicants may be required to visit their nearby branch office and meet with a loan specialist to discuss their identity documents, income, and collateral if applicable. You will sign your loan documents electronically or in person and then just watch for the funds to be deposited into your account or receive a check.

Is a Personal Loan for Credit Card Debt Right for You?

We hope you’ve found this discussion about how to pay off credit card debt useful and that you now have a better understanding about how personal loans work. A personal loan to pay off debt isn’t the best option for everyone at every time, but it is the right fit for many people who are struggling with credit cards.

To learn more about using personal loans for debt and discuss your financial situation with our loan specialists, please call our branch office nearest you. We have over 250 convenient locations staffed with friendly and knowledgeable professionals who are here to listen to your needs, questions, and concerns.

When credit card debt begins to feel unmanageable and overwhelming, Tower Loan is here for you. To help you make the best decision for your financial situation, please contact us or review our helpful FAQ page.