The numbers suggest that around half of all American households carry credit card debt, with an average outstanding balance of $20,000. If this includes you and you’re spending sleepless nights wondering about the ways in which you can rid yourself of overwhelming debt, you need not fret as you are not alone. We know that credit cards can be extremely friendly financial tools, but when misused, they can become nasty little debt generators like bad credit loans. They carry high interest rates and hence it is seen that taking out personal loans to combine credit card debt is the most viable option for you. What kind of personal loans can you get to consolidate credit card debt? Can you take out a debt consolidation loan? What are the pros and cons of such an endeavour? These are some of the questions we will dig into.
Advantages of Debt Consolidation
#1: You pay a low interest rate
The most irking factor for credit card debt is the outrageously high interest rates which make the monthly payments extremely high. In this sense, when you take out a debt consolidation loan, you can get the loan at a pretty low interest rate, which is much less than what you’re currently paying on your credit cards. This will save you a lump sum amount every month and it is also a wiser option to reduce the cost of your debt and eliminate debt sooner.
#2: Fixed terms and conditions throughout the term
In essence, personal loans are an installment loan, which clearly means that you have a particular interest rate and term throughout the entire term of the loan. If your loan carries 9% interest rate for three years, your monthly installment will be $750 for the entire term of the loan. This is why you don’t need to be ready for any odd situations where you might have to adjust your personal finances due to hike in monthly payments.
#3: Single monthly payments
In consolidating multiple cards into a single personal loan, you can simplify your personal finances by only having a single monthly payment. In other words, you don’t have to think of writing multiple checks as you will have combined your payments into a single installment. You just have to calculate the amortization period of the loan so that you know when you can actually become debt free.
Disadvantages of Debt Consolidation
#1: Continuous use of credit cards
The fact is only taking out a personal loan and using it for consolidating debts won’t be enough. If you still keep using your credit cards continuously, you’re simply nullifying the process of getting out of debt — that way you’re just delaying the inevitable.
#2: You can save too little
If your credit card debt amount is not so huge, you can easily pay it off with a little bit of prior planning and budgeting. When you know that you can repay a credit card in the near future, why would you take on yet another loan?
If you’re about to take out an online personal loan for combining your debts, you should consider the above mentioned pros and cons.