Paying Credit Cards Off With A Loan

Many people strive to become debt free.  A common solution that some people use in order to accomplish this is to pay off credit card debt with a loan.   

How To Use The Loan

When you obtain a loan in order to pay your credit cards off, you must be sure that the loan is sufficiently large enough to pay for the entire amount you owe.  For example, if you happen to have card debt that equals $3000, then you need a $3000 loan.  Once the loan is disbursed to you, then you need to send payments off to your credit card creditors.  At this point, you should now have just the one monthly payment on your consolidation loan.      

Benefits

It is possible that the most significant benefit to you will be the disappearance of the hounding creditors, if your payments were past due.  Once they receive your pay off payments, then they will stop calling and sending late notices.

The most obvious benefit will be that you will only have one monthly payment, instead of numerous credit card payments.  This will also make managing your budget a much simpler task each month.   

Depending on how low of a rate you get for the loan, you could also be saving money each month in finance charges.  This of course, means that more of your payment will be actually paying off the debt instead of the finance charges. 

Drawbacks

You must remember that when you use a loan for the purpose of paying off card debt, that you are not eliminating or reducing that debt.  You are merely moving the debt around in a manner that makes it simpler to manage and ultimately payoff.   

It’s also important to remember that it typically takes a good credit rating to get good credit.  In the case where you might have made some late payments, it is possible that your credit rating might have been negatively impacted, with the more recent late payment having a greater negative impact.  Poor or bad credit will negatively impact your chances of getting a loan.  If you happen to currently be greater than 30 days past due on any payment, you even face the risk of being completely denied for a loan.

If you are approved for a loan, you don’t always have to use.  Some people for get this important point.  You should always check that interest rate on the loan is lower than it is on the credit cards that you plan to pay off.  If it is not lower, then you will pay more in interest on the loan than leaving the debt on the credit card.   

These factors should be considered when you decide to payoff your debt using any loan.  You need to evaluate each factor and decide which course of action is right for you.