You can use a payday loan to pay-off your credit card debt in full. If you live in a state where payday loan restrictions are such that the interest rate on your personal loan is lower than the interest on your credit card, this could be a favorable option for you – you might even save money this way.
Using a personal loan for credit card debt is a form of debt consolidation. Debt consolidation is the act of taking out new debt, in this case in the form of a payday loan, and using it to pay off multiple old debts.
After consolidating, you’ll only have one bill to pay and hopefully at a lower interest rate.
Benefits of Using a Loan to Pay-off Credit Card Debt
This form of debt consolidation can be preferable if you have a large amount of credit card debt at a high interest rate.
You can clear your credit card debt
If you have high credit card balances, a payday loan or personal loan can help you pay off your credit card debt in full. This form of debt consolidation will not only give you the peace of mind that comes with being out of credit card debt, in some cases, it might even increase your credit score.
However, it is important to bear in mind that this is not the end of your debt! You will still need to pay-off the balance of your payday loan on-time and in full, or risk going into a debt cycle.
You might be able to get a lower interest rate
The average credit card interest rate in the USA is currently around 20 percent APR, but can often be higher depending on your credit score, income and other factors which affect the banks confidence in your ability to pay your credit card bill. In some cases the personal loan interest rate can be lower – especially if you decide to go for a secured loan, such as a title loan.
If you take out a personal loan that has a lower interest rate than what you’re paying on your credit cards, you could save a lot of money in interest charges by using your loan to pay off your credit card debt.
You will only have one monthly payment to worry about
Managing several bills or payments monthly can be tricky. Personal loans offer the option to combine your debts into one monthly payment. This makes planning and budgeting much easier, which allows you to allocate funds for your consolidated loan payment. Additionally, this approach may speed-up the repayment of your personal loan.
Steps to Pay Off Credit Card Debt Using a Loan
If you’re considering using a personal loan to tackle your credit card debt, follow these steps:
- Apply for a Personal Loan: Explore various personal loan services, assess eligibility requirements, and apply for a loan tailored to your debt and credit score.
- Utilize Loan Funds to Settle Credit Card Debt: Upon approval, the loan amount is typically deposited directly into your checking account. Allocate these funds to pay off your credit card debt; avoid using them for any other purpose. Misusing the funds could result in lingering credit card debt alongside the burden of a personal loan.
- Repay Your Personal Loan: Focus on repaying your personal loan on time and in full once your credit card debt is fully settled. Ensure your loan agreement doesn’t penalize early repayment and allocate any extra funds toward the loan each month.
- Avoid using your Credit Card During Repayment: Resist the temptation to accumulate new credit card debt as you work on repaying your personal loan. Minimize credit card usage, and if necessary, limit purchases to those you can comfortably pay off in full each month.
- Ensure you are using your credit card responsibly after repayment: While it’s unnecessary to abandon credit cards entirely, exercise caution. Enjoy the benefits of credit, such as earning rewards, but restrict usage to purchases within your financial means. Credit card debt is both costly and time-consuming, making personal loans a popular choice for a debt-free fresh start.