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How to get a loan to pay off credit cards

30.06.2021
543
12 min.

Private credits for debts settlement on credit cards

People usually prefer talking about their favorite games and apps, workouts, travels and the number of other issues but when it comes to the topic of money especially debts on credit cards everyone prefer being silent.

How to get a loan to pay off credit cards

But skipping such conversations doesn't mean this problem does not exist. After all, an average US family having balances on credit cards generally owe over $ 9,300 of the debt amount on it. Undoubtedly, it can be very stressful.

According to the researches, money is the second reason for stress that supersedes family and health problems and goes only after work. Over 50% of Americans having credit card debts stated that it had a negative impact on their lives.

Additionally, being a millennial means you are twice likely to worry about debts rather than baby boomers. While 56% of respondents claimed about the negative effect of debts for millennials that figure rises to nearly 7 out of 10 although both groups are equally in debt.

Luckily, several methods for covering debts on credit cards exist.

Debt settlement budgeting

There are simple options like a spreadsheet and more advanced ones like paid services for keeping track of the ways money spent. This can even enable clients to find funds in their budgets to redeem outstanding debts.

Note! Provided a customer holds more than 1 type of debt such as a mortgage, an educational loan and possibly a car loan then it is better to consider the most appropriate sequence of these loans' repayment.

Some professionals recommend covering the biggest debt first and after that the one with the largest balance. Another approach is to discharge the smallest balances first.

Thus, funds can be taken to repay the debt next month and utilized for the next smallest balance. This method provides small wins early on and over time may give some room to make larger payments on some other outstanding debts. The main issue for any of the abovementioned strategies that it is important to monitor all debts instalments.

Refinancing or consolidation

Debts refinancing along with consolidation are among the list of strategies especially for those on the way to post-graduation, an early promising career when a promotion is expected and so on. But refinancing is distinguished from consolidation.

Note! Refinancing mean a customer obtains 1 loan or a credit line and with its following replacement with another (for example, balance transferring). Consolidation is similar to refinancing as it consolidates existing debts into 1 loan which is to be repaid.

There is a number of reasons to consider refinancing as an option. The wish to lower monthly instalments, changing repayment schedule or just cooperating with another lender are among the widespread reasons.

As finding credit cards with fixed rates is becoming challenging and the average per annum percentage rate for variable-rate ones hovers around 17% then refunding debts could potentially save substantial sums provided a customer holds a private credit for debt consolidation with an average rate of just about 9%.

Actually, an online application submission normally takes just a couple minutes and it provides more opportunities than ever with the help of innovative startups in fintech sphere aiming to make the procedure of debts on credit cards refinancing quick and easy.

Again, potential savings are possible. The percentage to be paid can be estimated with an online credit card percentage calculator or the personal credit calculator.

Personal loans for debt redemption on a credit card

The actions to redeem a balance on a card having an unsecured personal credit are not particularly difficult but it is important to have a plan.

1. Obtaining a full picture

It can appear to be intimidating but getting the exact figures regarding the existing debt total sum, the amount owed on each particular card along with the corresponding percentage rates applied provides an indication of the volume of the personal credit that is to be received.

2. Search for private loan options

Nowadays personal credit researches can be conducted online. Usually personal loans with rates of interest of a lower level than those currently paid on cards. Creation fees are also worth special attention as they can be costly and lead to disruption of a repayment plan.

3. Debts settlement

Once a customer has chosen a credit, submitted an application and become eligible for receiving a private loan, they will probably want to obtain funds immediately and redeem the current debt in full.

The process of a credit issuance may vary that means some lenders forward money to issuers of credit cards while others send customers cheques which are deposited and used for debts covering afterwards.

4. Suppression of credit cards with balances

One of the potential risks of utilizing a private credit for paying off card debts is that further accumulation of balance is unlikely and after all, a debt of $ 0 can be tempting. And the purpose of personal loans usage is to cover debts on credit cards and avoid repeating such an issue.

Whenever appropriate, credit cards should be put in a drawer or so and used as little as possible. That is where budgeting comes in handy.

5. Personal loan redemption

The main advantage of utilizing a private credit for debt consolidation is in the presence of only 1 monthly payment instead of several ones.

Learn more about personal credits

What are the reasons for combing balances on credit cards with a private credit?

Attention! The majority of unsecured personal credits are issued with a fixed annual rate of interest which is a non-fluctuating or changing depending on the index rate.

This does not mean that the rate is not the subject to change under any circumstances within the loan maturity as, for example, it may fluctuate resulting in several arrears. But in case it remains permanent means the same amount has to be paid every month during the loan maturity.

Another advantage is the simplicity of online applications submission and access to many lenders' customers support services. Online applications may accelerate the process of a private credit obtaining as an applicant doesn't have to visit a post office for sending a certified letter or print out complicated tax documents. Access to live customers support may help get answers to all outstanding matters.

Another possible benefit is payments suspension in certain situations. In order to be eligible for this benefit the loan generally needs to be in good standing among other requirements. But in case of a client's job loss a number of lenders like SoFi may temporarily suspend instalments and help find a new job. It should be noted that interest is accrued during the suspension period and is added to the principal when repayment is resumed.

The Unemployment Protection Program of SoFi applies 3-month stages that can be extended for a maximum of 12 months within the loan term.

Borrowers who apply for such a benefit may be eligible provided among other qualifications they are SoFi's active members, hold a proper loan with good reputation, are able to prove the loss of job that was not caused as their own fault but appeared forcibly and actively cooperate with Career Services for finding a new job.

Finally, there is the benefit providing the possibility to redeem a debt without referring to balance transferring credit cards.

49% of Americans are aware of credit cards for transferring balance existence. They are just credit cards usually having an introductory offer with a lower or 0% rate in case the existing balance has been redirected to a new card.

This might seem like an attractive option but if the existing balance has not been repaid before the tempting offer expires then it can result in redeeming an even higher rate of interest. Sometimes it is also obligatory to pay a transfer fee to the new cardholder.

Strong and weak sides of a private credit usage for balance repayment on the credit card

There is a variety of reasons for obtaining personal loan from purchasing a camper van to redeeming medical bills. Anyhow, debt consolidation is a very widespread way of its usage. By taking the proceeds from a private loan for covering the balance allows to eliminate several monthly instalments on a high-interest card and consolidate the balance into 1 monthly individual credit payment that is frequently at discounted rates.

Undoubtedly, receiving a private loan to redeem the balance on the card has its benefits but indeed not always the most suitable option. Prior to submitting an application for a such type credit a customer should check all its strong and weak sides.

4 benefits of utilizing personal credits to redeem balances on credit cards

Applying for a personal credit can be a solution in case the goal is to settle the debt faster than by simply making minimum monthly instalments. And there are more benefits personal credits can offer.

1. Clients can get a lower percentage rate

Clients having a balance may pay 20% per annum or more while borrowers having an excellent credit history can pay approximately 12% to 17% depending on the card type held.

However, for private loans an average rate of interest less than 10% is generally applied. The best options are even more beneficial provided a customer has a high credit rating. This means it is possible to cut total interest instalments in half and even be able to cover the debt within a shorter time period since less interest has to paid off.

2. Consolidation simplifies payments

In case a client has to make various instalments on a credit card monthly, keeping track of minimum sums as well as due dates can be a rather sophisticated issue. Moreover, late payments fees and a drop of a credit rating can be caused by an arrear or a payment default.

Obtaining a credit for debt consolidation suggests that only 1 monthly payment needs to be made instead of multiple ones. Thus, fewer instalments can free up time for other things.

3. Credit rating can be improved

Despite applying for a private loan triggers a rough credit check and temporarily reduces credit score, obtaining such a loan actually may have a positive influence on a client's credit score in several ways.

Important! A personal credit issuance enlarges a loan portfolio that constitutes 10% of an account. This shows a client as a responsible user of the funds borrowed with various types of credits and debts.

Debts settlement affords to reduce a loan utilization rate as well. Credit usage is the ratio of the loan amount and the sum available to a customer. Paying by card may case the drop of the utilization rate up to 0%. Meanwhile, the rate of less than 30% and ideally less than 10% is considered as a good utilization of a credit and can help the score to be improved.

4. Debts can be redeemed earlier

Depending on the amount borrowed it can cake years or even decades to repay an existing balances provided minimum monthly instalments on a credit card are made.

Once a personal credit is issued a customer is able to redeem the balance on a definite credit card immediately and set up a schedule of repayment for discharging the private loan only. Terms can vary according to a loan sum and a lender. Provided the plan is to discharge amounts on a credit card within 10 years, obtaining a personal credit allows to make repayment in less than 5 years. But a client should be careful not to restart debt cycle.

3 disadvantages of utilizing a personal credit in order to redeem credit card debts

There is a couple potentially negative implications regarding debt consolidating by obtaining a personal credit. These shortcomings should be considered prior to making a decision.

1. A private loan obtaining can lead to a debt increase

Getting a private loan means a customer is borrowing more funds and if it is issued for paying the existing balances on credit cards off and afterwards debts on them will be accumulated again will result only in boosting the balances.

Indeed, a private consolidation loan is not a universal method for debts elimination. It should be taken only if a client intends to apply it in other ways like increasing monthly payments or setting up a card for balance redirecting.

2. A lower percentage rate is not guaranteed

Personal credits generally offer lower rates of interest in comparison to credit cards but this privilege may be not for everyone. Applicant having not an excellent credit rating may not be eligible for a such a loan. Provided a bad rating provides eligibility for a personal credit usually a higher rate is applied.

3. Private loans incur commissions

Some lenders collect various payments such as late, registration and insufficient funds fees. This issue should be kept in mind when comparing different lenders.

How to select the most appropriate private loan

There is a variety of private loan lenders charging different percentage rates, commissions and offering diverse repayment terms. No sets of standards for such loans type exist that means a wide range of options based on customers' requirements are present on the market. Below are the factors to be considered when choosing a credit:

  • Percentage rates. The best loans propose the lowest rates to customers having the highest credit rating. Thus, high score may grant low monthly instalments to be made as well as low interest to be redeemed over a credit maturity.
  • Charges. Credit score of a high level allows qualification for many loans that don't charge issuing as well as other fees. If a client doesn't have a good credit history then fees evaluation of each lender should be conducted in order to find the most convenient ones.
  • Terms of repayment. They may vary greatly according to a lender. Some provide up to 6 months maturity while others offer those of 5 to 7 years. In case a client's aim is to repay a loan within a shorter time period it's worth finding an issuer that grants shorter maturities. Provided the reduction of monthly payments in necessary then it is better to apply for credits with longer maturity.
  • Credit amount. Sometimes obtaining large loans for debts covering is not necessary while in other cases customers have to borrow significant sums. A credit history can affect a loan size as lenders perceive applicant with good rating as potentially reliable clients. In addition, minimum and maximum amounts vary depending on a lender.
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