Should I take a Personal Loan to Pay off High-Interest Credit Card Debts?

Loans which aid the lenders in times of financial crisis or emergency often end up leaving the lender stressed due to sky-high interest rates. Credit card debts which are most readily available, in just a swipe, have no doubt eased the task of obtaining a loan and acting as secure backup in times of economic tensions. The problem is with their sky-high rates of interest. These high-interest rates, in the long run, put a financial burden on lenders, and they eventually run in the loss. 

Personal loans consolidating credit card loans

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Personal loans, which are unsecured and do not require any collateral, help out borrowers financially in times of needs. One thing to be noted here that these personal loans have higher interest rates than secured loans. However, the interest rates charged on personal loans are still lower than those of credit card debts. It is a financially sound idea to obtain a personal loan at a lower interest rate and use it to repay high-interest credit card debts. The defined tenures of personal loans make the lenders more disciplined with payment of debts. It is suggested to opt for a personal loan for consolidating credit card debt only if you have a massive amount of debt. This practice not only saves the lender’s money but also helps them to come out of debt in a shorter time. Taking a personal loan for settling credit card debts is helpful for short terms. In the long run, this, however, may not be of many benefits. A lender has poor credit card score and meets the eligibility criteria for personal loans. It is best to obtain a personal loan at a lower rate and pay off credit card debts charging high prices. Another advantage of availing a personal loan for debt repayment is that several small credit card loans are challenging to manage and lenders find it cumbersome to focus on monthly installments. When you have availed a personal loan to pay off credit card loans, you only need to focus on one payment. It is like bringing together all your smaller debts under a single umbrella. Repayment of credit card debt from personal loans brings down the monthly payments by nearly one third, however, the number of payments can increase. It helps the borrower to save on monthly expenditure and become tension free about managing huge installments every month.

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A look into the cons

When you avail a personal loan for a more extended period, you run in the loss. It might initially seem beneficial in bringing down monthly EMIs, but in the long run, you end up spending more. The longer is the tenure; the higher is the expenditure. Missing personal loan’s EMI harms credit score, which is not desirable to any borrower.

You are making maximum profits from the personal loan.

To make the most of your loan, target at obtaining a personal loan for a shorter duration, even if you have to pay higher EMIs. Lesser no. of installments work in favor of lenders to avoid paying the principal every time. Also, do not default any EMIs.

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