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If you’re not sure how to best deal with credit card debt, our guide to debt consolidation and credit card refinancing can help. (iStock)
Personal Loans For Credit Card Debt Consolidation
If your credit card balance is difficult to manage, paying off these debts with a personal loan is possible.
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Sometimes, this is called debt consolidation. Others may call it credit card refinancing. However, this means turning your card balance into a personal loan that you pay off monthly.
Here’s what you need to know about debt consolidation and credit card refinancing. If you’re thinking about transferring your credit card debt to a low-interest personal loan, Credible makes it easy to compare personal loan rates from multiple lenders.
Credit card refinancing is when you use another financial product—usually a personal loan—to pay off your credit card balance. You then make monthly payments on this loan until it is paid off in full.
This system allows you to get a lower interest rate (most credit cards have a higher rate than a personal loan), and it also adjusts your payments so that you only pay one payment per month.
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Credit card refinancing is generally good for borrowers with bad credit who can get personal loans at lower interest rates than credit cards.
Banks, credit unions, and online lenders often offer personal loans that you can use to refinance your credit card debt. This requires a credit check and various financial documents.
The lender you choose will depend on a number of factors, including your credit score and whether or not the loan is available for immediate financing. For example, some online lenders can provide funding as soon as the next business day after loan approval.
It’s a good idea to compare personal loan rates from lenders before deciding on a credit card refinance. Reliable makes it easy to see your qualifying rates in minutes.
Personal Loans Vs. Credit Cards: What’s The Difference?
In both cases, you use a personal loan or other type of loan to pay off your credit cards and other debt. It actually converts your loan into one loan that you can pay off over time.
Refinancing your credit cards and using a balance transfer card have the same general principle, but the two can have different results. With refinancing, you end up with one, fixed payment over the long term. This makes it easier to pay off more of your debt, and often lowers interest costs as well.
With a balance transfer card, you use a new credit card to pay off another card (or several). These cards come with low interest rates – usually 0% – that expire after 12-18 months. That’s when the price goes up significantly.
While balance transfer cards can save you interest if you pay off your balance before the introductory period ends, if you can’t pay off the balance on the new card, it could mean bigger interest charges in the long run.
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The right choice depends on your balance, interest rate, credit score and other factors. In general, balance transfers can be a good idea:
Here’s an example: You have $10,000 on your credit card, and your bank offers you a balance transfer card with 0% interest for 18 months. Under these terms, you must pay at least $555 per month to pay off the balance before the introductory rate expires. If that’s not possible, a personal loan may be a better option, offering longer repayment terms and lower monthly payments.
You don’t need a perfect credit score to qualify for a debt consolidation loan, but the higher your score, the better your chances of getting a personal loan for the right amount and rate. Generally, a minimum score of 650 is required to qualify, and a score of 720 can increase your chances of being selected for advanced AP.
If you are below this level, you may want to try a credit consolidation loan or work to improve your credit before applying.
Credit Cards And Bad Debt
When you’re ready to proceed with a loan or credit card balance transfer application, check out the store. Rates, fees, terms, and eligibility requirements vary by service provider, so comparing at least a few different lenders and credit card companies can ensure you get the best deal. Both personal loans and credit cards offer a way to get money, and there are many of them. regular loan payments. In loan and credit card agreements, you will usually find out the amount the lender pays, the specific interest rate, monthly payments including principal and interest, late payments, down payment requirements, and amount limits. , and more. Breaking both types of credit can hurt your credit rating, cause problems with credit, finding a good home, and getting a job.
But apart from similar features, personal loans and credit cards also share important terms, such as payment terms. Let’s look at the definitions and differences between the two, along with some pros and cons.
Before comparing the differences between personal loans and credit cards, it is important to understand one of the main similarities. The United States and most other countries have integrated credit approval systems that are the basis for credit approval. The three credit bureaus in the United States—Equifax, Transunion, and Experian—are the leaders in setting credit standards and working with credit agencies to issue credit approvals.
Credit scores are based on a person’s past credit history, including bad credit, inquiries, accounts, and outstanding balances. Each person is assigned a credit score based on this date, which greatly affects their chances of being approved for credit. In short, all the factors considered by the lender can also affect the interest rate the borrower pays and the total amount allowed.
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Both personal loans and credit cards can be secured, which also affects the terms of the loan.
Paying off credit card balances and paying off personal loans can both help build your credit score.
Lenders offer different options in the personal loan category that affect the terms of the loan. Generally, the biggest difference between a personal loan and a credit card is the long-term balance. Personal loans do not provide constant access to cash like a credit card. The loan is a one-time loan, with a limited time to pay it in full, through scheduled payments, and to retire the loan. This deal often comes with lower interest rates for borrowers with good credit scores.
Personal loans can be used for many reasons. An unsecured loan can provide you with cash to finance major purchases, consolidate credit card debt, home repairs or renovations, or cover income gaps. Unsecured loans are not guaranteed by a guarantor.
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Home loans, car loans and other types of secured loans can also be considered personal loans. These loans will follow standard loan approval procedures, but may be easier to obtain because they are backed by assets.
With a home loan or car loan, for example, the lender has the right to repossess your home or car after a certain number of delinquencies. Secured loans usually come with slightly better terms because the lender has title rights, which reduces the risk of default. Here are the pros and cons of personal loans.
Remember, interest is not the only cost to consider in a loan. Lenders also charge fees, which can add to the overall cost of the loan. Personal loans often include a down payment and may have other fees.
A difference worth noting is the difference between a line of credit (LOC) and a loan. Unlike a loan, a line of credit has the biggest advantage. The downside is that it often comes with high interest rates.
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A LOC is a pre-determined amount of credit, but borrowers don’t have to use it all. The borrower can exit the line of credit at any time without exceeding the credit limit and other requirements such as the minimum payment on time.
LOCs can be secured or secured (most are the latter) and are usually issued by banks. The main exception is the home equity line of credit (HELOC), which is secured against the borrower’s home equity.
Credit cards fall into another class of credit called revolving credit. With a revolving credit account, the borrower usually receives regular payments as long as the account is in good standing. Chargebacks on credit card accounts may also be eligible
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