If Youve Considered The Fees
Dont get blindsided by any mystery fees. They should factor into your decision on whether its worth taking out a personal loan, which often come with origination fees. These are one-time costs you pay upon loan approval. These fees typically range from 1% to 10%. If you are consolidating $15,000 in credit card debt, then you could be hit with a surprise origination fee as high as $1,500 if youre not vigilant when reading the contract. Some lenders eschew origination fees, but they usually end up factoring that cost into your monthly payments, which makes your APR higher. Always read the fine print and do the math before taking on new debt.
You Have A Large Amount Of Credit Card Debt
Personal loans have minimum borrowing limits, typically from $1,000 to $5,000. If you dont have a lot of credit card debt, taking out a loan may not be worthwhile, as youd be paying interest on money you dont need.
That said, you dont need to pay off just credit card debt when you get a loan. For example, if you have a high-interest auto loan in addition to credit card debt, you could take out a personal loan that allows you to pay them both off via debt consolidation.
When To Use A Personal Loan
A personal loan is a good option when you:
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Qualify for a low APR. Low-rate loans can make monthly payments more affordable and reduce your principal more quickly.
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Want to consolidate large, high-interest debts. High borrowing amounts and fixed payments over a few years can help you pay down debts.
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Need to finance a large, one-time expense. Ideally, the expense will help your finances in the end, like a home improvement project. Personal loans arent designed to be taken out frequently.
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Can make monthly payments over the loan term. As with credit cards, failure to repay results in a hit to your credit score.
Annual percentage rates on personal loans generally range from 6% to 36%. Borrowers with a FICO score of 690 or higher and a low debt-to-income ratio may qualify for a rate at the low end of that range. Borrowing limits can also be high, up to $100,000 for the most qualified borrowers.
A personal loan is an installment loan, which means you get money all at once and make fixed monthly payments over a set period, usually two to seven years. Many online lenders let you pre-qualify for a loan to see estimated rates, with no impact on your credit score.
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Hiding Those Credit Cards
One potential risk of using a personal loan to pay off credit cards is that it can make it easier to accumulate more debt. The purpose of using a personal loan to pay off credit card debt is to keep from repeating the cycle.
Consider taking steps like hiding credit cards in a drawer and trying to use them as little as possible.
What Do You Need To Verify My Checking Account
If we do not have an eligible checking account on file for you, and you are required to add a checking account to receive your Personal Loan funds, we may need to verify your checking account by asking you for personal information. If we are unable to verify your checking account for any reason, we will cancel your Personal Loan, and you will not receive your Personal Loan funds. In addition, you will not be able to apply again for at least 60 days afterthe decision on your most recent loan application, and only if you receive a new offer to apply.
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Yes A Credit Card Can Pay Off A Personal Loan
Well, at least in some cases.
You can use a credit card to pay off a personal loan, advised personal finance writer and credit card expert Ben Luthi. Some credit card issuers will allow you to do it directly through your online account like any other balance transfer.
If your issuer wont allow you to do it directly through their balance transfer tool, you can request credit card convenience checks instead. Some issuers even send these out unsolicited. You can write the check to your personal loan company or write it to yourself and deposit it into your checking account then make the payment.
Essentially, if you have a standard credit card, and you want to use it to pay for a standard personal loan, youll probably be able to do soas long as the loan amount is within your credit limit.
How Can I Make Sure Im Eligible To Transfer My Personal Loan To A Credit Card
Requirements vary among cards, but most card providers require you to meet key criteria before transferring a personal loan:
- Meet eligibility for the credit card.Look over the application to make sure you meet the minimum age, residency status, preferred credit score, minimum income and any other criteria the provider specifies.
- Transfer your loan from an eligible bank.Most balance transfer cards wont allow you transfer existing debt if its from the same bank or provider youre applying with. That means you wont be able to transfer a Citi personal loan debt to a Citi credit card. The debt you transfer must also be in the name of the primary account holder for the new credit card.
- Ensure your debt doesnt exceed the balance transfer limit.Most cards limit how much you can transfer. Discover and Citi allow transfers up to your available credit, while others may allow transfers at up to 80% of your credit limit.
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Choose The Best Personal Loan To Pay Off Credit Card Debt
Can you use personal loan to pay off credit card? This may be a smart choice provided that youve considered all the benefits and drawbacks of this solution.
As with every other lending solution, requesting a new loan to repay your credit card debt has pros and cons. If you have several cards and cant cope with making on-time payments and covering the balances you may need to take out a loan.
You should evaluate the risks, take some time, and do your research before you make the final decision. Review several service providers and compare their rates and conditions until you are satisfied with the offer.
Remember that your credit rating may affect your ability to obtain a low-credit loan. Also, choose the creditor that performs a soft credit check and doesnt have additional charges.
Moreover, pay attention to the term of the lending offer. If a provider is eager to issue the funds at lower rates and for a shorter repayment period, it may be worth giving it a try.
Otherwise, it doesnt make sense to take out more debt and spend months trying to pay it off. Dont rush with such important decisions and make sure you make a wise decision.
Common Questions About Transferring A Personal Loan To A Credit Card
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Is there a limit to how much I can transfer?
Yes. Most providers allow you to transfer up to your credit limit or a percentage of your credit limit.
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I want to consolidate my debts. Is it better to use a debt consolidation loan or a balance transfer credit card?
It depends on your circumstances. However, debt consolidation loans generally provide a fixed interest APR thats applied from the time the loan is approved. Balance transfer credit cards, on the other hand, can provide a low or 0% introductory APR before the standard APR applies, effectively providing you with an interest-free period.
Consider a range of loan and credit card options before deciding on the one that meets your needs.
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Does the promotional rate end if I miss making a repayment?
It depends on the provider. Carefully read the terms and conditions before you apply to avoid accidentally cutting your promo period short.
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If I transfer my personal loan to a credit card, is my debt considered personal loan debt or credit card debt?
Successfully loan transfers are considered credit card debt.
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Should You Consolidate Your Debts
Some loans are specifically advertised as debt consolidation loans these allow you to merge several credit commitments into one.
Consolidation loans are now much harder to get. Its important to only consider taking one out when youve explored all your other options, especially if the loan is secured against your home.
While they can seem an attractive option because of lower interest rates and repayments, consolidation loans can often cost you a lot more than sticking with your current loans.
This is because they usually have a much longer repayment term than unsecured loans. You might also risk losing your home if the loan is secured and you cant keep up with the repayments.
When youre consolidating your debts, also try to avoid building up more debt elsewhere.
What Are The Potential Drawbacks Of Personal Loans
While your interest rate with a personal loan may be lower than your credit card rates, you may find that the monthly payment for your new loan cuts deeper into your monthly budget.
With a fixed-rate personal loan, youre locked into a set monthly payment for a specific period of time, and this monthly payment may be higher than the minimum payments on your credit cards, says Shannon McLay, founder of financial services company The Financial Gym.
So while you may save money on interest, your overall payments could be higher and present a cash flow issue. And as McLay notes, if you miss payments on your personal loan, it will most likely negatively affect your credit scores.
Another issue to look out for: Fees can add to the cost of your loan and eat into whatever you might be saving on interest.
Some lenders charge loan-origination fees for processing your new loan. Typically, the origination fee is a small percentage of the total loan. This fee may be included in the loan amount though which means youd be paying interest on the fee as well. Also, watch out for prepayment penalties, which are additional fees that lenders may charge for paying off your loan early.
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Searching Personal Loan Options
These days, most or all personal loan research can be done online. A personal loan with an interest rate lower than the credit cards current rate is an important thing to look for. Origination fees, which can add to a persons overall debt and possibly throw off their payoff plan, is another thing to watch out for.
Focus On Interest Rates Save Money
In addition, if you look at your credit card statement and compare it against your mortgage or car loan bill, one number will jump out at you the interest rate. In general, a credit card will have a much higher interest rate than an installment loan in many cases at least 10% higher . This is another good reason to pay down your credit card debt first.
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Ask About Hardship Programs
Credit card issuers have hardship programs designed to help people who find themselves unemployed or experiencing another kind of unexpected financial strain. Many of these programs include , in which card issuers waive payments for a set period of time. If you are in the middle of a financial crisis, calling your credit card issuer and asking about hardship programs can help you avoid getting into unmanageable credit card debt.
When Paying Down Debt You Need A Plan
ShaKreshia Lewis, CEO of Humble Hustle Finance shared her own story of using a credit card to pay off a personal loan: You can use a credit card to pay off a personal loan but it may not be the wisest thing to do. It is important to weigh your options and run your numbers before making a decision.
Speaking from personal experience, I used my credit card to pay off my last couple of payments on my personal loan. The balance on my credit card was at $0 and I paid the credit card off before the month ended. I saved on interest because I paid the loan off before term and I paid the credit card off before any interest accrued.
It made a huge positive impact on my credit because the loan was paid off in full. The credit card company did not report it to the credit bureau that my balance went up because I paid it off before their next report date came around.
As Luthi said, it pretty much comes down to whether youll be saving money or not. If you can use your credit card to pay off the loan without paying any additional interest or fees, why not? But otherwise, its not going to be a good idea.
Well leave you with this last bit of advice from Lewis: Be financially disciplined. One late payment could have you deeper in debt than you were before. It may make more sense to refinance a loan with a lower rate than to put it on a credit card with higher interest.
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Do You Need Your Very Best Credit Score Now
Damage to your credit score from paying off a personal loan early likely won’t be catastrophic or long-lasting. But sometimes, such as when you’re applying for a mortgage, you’re counting on every point of your credit score to help you get a great rate. In this situation, you might want to hold off on repaying your personal loan in full until after your mortgage is approved.
Compare Your Options And Find A Low
Contact your loan provider to find out if you are allowed to use a credit card to pay off the loan balance.
Factor in any transfer fee, when comparing the savings you could reap from making the transfer from loan to card. Transfer fees are usually between 3-5% of the amount transferred.
Find out if your new balance transfer credit card charges any additional fees in addition to the balance transfer feeto process the transfer between cards.
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Good Reasons To Get A Personal Loan
People get personal loans for lots of reasons. Whether getting a personal loan is a good decision depends on your financial situation and habits.
The two most common, according to a recent , were to refinance credit card debt and to pay for unexpected expenses. Other reasons included making a major purchase, making home improvements and consolidating other debts.
And its not just lower earners who sought personal loans for these reasons. The Credit Karma survey found that 10% of members who shopped for a personal loan to cover an unexpected expense had an annual income of $100,000 or more.
Whether a reason is good or bad depends in part on your financial situation and your feelings about debt. One of the good reasons is when a personal loan can help you improve your financial situation.
Using a personal loan to consolidate and pay off credit card debt can be a good idea if you have accounts with high interest rates, says Joe Toms, president and chief investment officer of FreedomPlus, a personal loans lending company in Tempe, Arizona.
Personal loans often have lower rates than credit cards, so they can help you consolidate your credit card debt as well as pay less interest on the debt overall.
Getting A Loan To Pay Off Credit Cards
Are you knee-deep in , and you dont know what to do about it? Fortunately, there are plenty of ways around your situation. One of the strategies youll often see is taking out a personal loan to pay off credit card debt.
But is it a good move? More importantly, is it the right approach for you?
In this article, well discuss using a personal loan as a way of doing debt consolidation. Well explore the pros and cons of this method, and suggest other alternatives that you can try.
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So What Are The Benefits Of Paying With A Credit Card
If youâre going to use a credit card for purchases and expenses, itâs best to only spend what you can afford to pay off each month to avoid costly interest charges. Aside from helping with short term cash flow issues throughout the month, or using your credit card to help manage your monthly household expenses, credit cards have other benefits. Many cards come with reward programs that reward you with earning points for each dollar spent on your card. You can accrue points and redeem for flights, accommodation, gift cards and more. Some cards also have travel insurance, extended warranties and purchase protection insurance. Use our compare tool or selector tool to find more information about our NAB credit cards.
What Is The Best Way To Pay Off Credit Card Debt
There will be a different answer for everyone here, but as a guiding principle, the best solution is the one that minimises the total interest you have to pay. Its also essential that your monthly payments are affordable, so you should work out upfront what you could afford, and stay comfortably within it.
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