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Should You Pay Off Your Credit Cards With A Personal Loan?

By Michael Redbourn

Republish: EasyPublish™
Published: 04Jul2009
Word count: 587
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It may or may not be a good idea to pay off your credit cards by using money from a personal loan, but we'll take a look at the variables, after which you should be able to decide if it would be the right choice for you or not.

Moreover, it needs to be said right up front that the intent of this article is not to suggest that you take out a personal loan in order to pay off your credit cards, but is merely to point out the pros and cons of doing so.

First off, it's probably not worth taking out a personal loan to pay off your credit cards, if you owe less than $15,000 on them.

If you do owe more than $15,000 though, and you're likely to start missing payments, then paying off all your cards might be a good idea, because you'd avoid future penalties, and paying more interest on the interest.

The first thing that you need to do, is to check how much interest you're paying on your cards, because you'll later need to compare this sum with the interest that's being requested by the bank offering the personal loan. The amount of interest that's charged for personal loans varies greatly, will depend mostly on your present FICO score.

If your credit rating's not in great shape, then it's likely that the interest on a personal loan will be higher than it is on your credit cards, but if you get behind on your credit card payments then the penalties build up fast, and so does the compounded interest.

A personal loan has no compounded interest, and you can arrange easy to make installments when you sign up. Additionally, you'll only have to make one payment a month, and a paid off personal loan looks a whole lot better on your credit rating, than defaulted credit card payments.

Should you think that a personal loan might be the best option, then before you go hunting for one, the following are what you'll most likely be asked for, if and when you apply for one.

1) At least three months proof of employment.
2) A recent pay slip, that shows your take home pay.
3) Utility receipts, to validate your home address.
4) Checking or deposit account details.

If you're approved for a loan, which in most cases only takes 24-48 hours, then the money will be paid into your bank account, and your monthly payment will be deducted from it automatically, providing of course that there's enough money in your account.

You should check out at least three loan companies before finally deciding on one, and then compare the following.

1) Interest rates. 2) The type of repayment schemes available. 3) Any additional, semi-hidden fees. 4) What you'll need to provide to get approval. 5) Length of time to get approved.

The final and most important thing to check before signing on a dotted line, is whether your monthly payments will be higher, or lower with a personal loan.

Once you know that, you should easily be able to make an informed decision as to what would be best for you.

Some Parting Words Of Advice.

Don't be flippant about taking out a personal loan, because you want it to help you, and not make your situation worse.

Once you have the loan, do your very best to make sure that the monthly payment gets paid, even if it means cutting back on some luxuries for a while, because missed payments will very negatively affect your future credit score.

The author of this article was a top film sound editor for many years and he produced a film for Columbia at a very young age. He has a passion and a flare for economics, and one of his websites -> Pay Off Debts features the famous Get Free In Three system which has helped a huge number of people get out from under suffocating debts.

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