Convert Credit Card Debt To Personal Loan – Written by Hanneh Bareham Hanneh BarehamArrow Right Author, Personal Loans and Debt Relief Hanneh Bareham is a personal finance writer since 2020. He started as a credit card reporter before transitioning to the role of student loan reporter. She is now a writer on the lending team, expanding her scope into many types of consumer lending. Connect with Hanneh Bareham on Twitter Connect with Hanneh Bareham on LinkedIn Connect with Hanneh Bareham on Email Email Connect with Hanneh Bareham
Edited by Sarah Gage Edited by Sarah Gageiro Wright Senior Editor, Credit Cards Sarah Gage is a senior editor on the team. She is passionate about providing clear, concise information that helps people take control of their personal finances, and her writing has been featured in Entrepreneur, Tally and Happy Money, among others. Sarah Gage
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Convert Credit Card Debt To Personal Loan
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If you’re looking for an affordable way to pay off your high-interest credit card debt and your credit score is in good shape, you have several debt consolidation options to consider.
Two of the most popular methods to help pay off debt and save money along the way are balance transfer credit cards, which let you transfer debt from other sources and pay less than 0 percent interest for an introductory period, and debt consolidation loans, which. Unsecured personal loans are loans that you use to pay off your other debts, often at a lower interest rate.
Here are the main differences between the two, as well as important factors you should consider when making your decision:
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Debt consolidation loans and balance transfer credit cards come with their own pros and cons. The following factors can help you understand how each option affects your specific financial situation:
Interest rates are the first — and possibly most important — thing to look at when comparing credit cards and debt consolidation loans. Balance transfer credit cards offer an interest-free period upfront, but after the introductory period the rates are usually higher than the interest rates on personal loans. This is especially true if you have good credit, says credit expert John Ulzheimer.
However, there is virtually no such thing as an interest-free personal loan. With good credit, you can get a personal loan with an interest rate in the single digits, although you’d be hard-pressed to find close to a 0 percent APR personal loan. Currently, the average interest rate on personal loans is around 11.05 percent, while the average credit card interest rate is above 20 percent.
Another key consideration is how long the 0 percent interest period lasts for a balance transfer credit card. See the total amount you owe before your 0 percent interest period ends and the average payment you’ll need to make to pay it all off. If you have $5,000 in credit card debt for 18 months and a 0 percent APR, for example, can you afford to pay $278 per month over that timeline to become debt-free?
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If you can afford the monthly payments to pay off your loan before interest accrues, a balance transfer card may be right for you. If not, you can consider a personal loan.
Why it matters: The interest rate you pay on the loan is the primary factor in determining your monthly payment. Choosing an option with a lower interest rate can help keep your payments lower and give you a better chance of paying off your loan.
Many balance transfer offers include a one-time fee, which can add up to about 3 percent to 5 percent of the total debt you transfer.
For example, if you want to transfer $5,000 to a new card that charges 0 percent interest for 12 months, you may be charged $150 to $250. That’s still cheaper than a 12-month personal loan with an 11 percent interest rate, which would lead you to pay $302.90 in interest.
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If you’re considering a personal loan, be aware that some loans charge an origination fee — a one-time fee that’s taken from the total amount you’ve received. However, banks and credit unions typically do not charge origination fees on personal loans.
Origination fees can be as high as 8 percent of the loan amount in some cases. In other words, if you ask for a $5,000 loan to consolidate credit card debt, you might get $4,600, minus a $400 origination fee from your balance.
Why it’s important: No one likes to pay unnecessary fees, so make sure you’re aware of any fees you may be charged. Take the time to run the numbers, however, as it may make sense to pay some fees to secure a lower interest rate or other favorable terms.
Ulzheimer says he favors personal loans for debt consolidation because the interest rate never changes and the loan has a fixed payment date. With predictable payments, a debt consolidation loan can help budget. If you’re not managing a credit card perfectly, you may end up paying more over a longer period of time than you would have with your personal loan.
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Steve Repak, a North Carolina-based certified financial planner and author of the “6 Week Money Challenge,” says he favors balance transfers because they’re more flexible than personal loans.
“What if you lose your job or what happens, some kind of financial emergency where you can’t make the $500 payment?” Repa says. “A 0 percent transfer can give you some flexibility even though it can cost you more. With a fixed payment, you’re stuck with that.”
As you decide how to consolidate debt, look at your situation to see which option makes sense for you. If you need help with budgeting and want fixed payments, a personal loan can be a good option. If you want flexibility, a balance transfer credit card may be right for you.
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