With the year-end just round the corner, you may be planning on how to spend New Year’s Eve and start afresh with everything next year. While it may be quite tempting to push off financial planning to the next year, there are a number of important things that need prior attention. Credit card debt is one such item to cross off your list before this year ends.
We understand that you cannot pay your credit card dues all at once especially if you have piles of debt on multiple cards. In such cases, you can take help of personal loan or credit card balance transfer. Let us discuss these two options in some detail.
Pay off Credit Card Debts with Personal Loan
This can be quite helpful for those who have been rolling their credit card bills over a number of months by paying just the minimum amount due. It is difficult to get out of the cycle once it starts. This is the reason why we always emphasize on making full payment towards your credit cards every month. When you pay only the minimum amount due, the remaining balance attracts finance charges (interest) on daily basis. When you do this for several consecutive months, the remaining rollover balance plus interest may become quite a burden.
How a personal loan might help?
If you are eligible for a personal loan, you can apply for the same and with the loan proceeds you can pay the total credit card dues in one go. There are two main aspects on which a personal loan helps-
- You will not have to pay any extra amount in the form of interest/finance charges.
- You will have to pay only one EMI rather than multiple EMIs on multiple credit cards.
This method of credit card debt payment is suitable for those who have multiple credit cards and have found the root cause of their credit card debt. The basic idea behind paying off credit card debts with personal loan is to restructure your debts in order to save some money. So, if you think you would not be able to save much by this method, it is probably not a good idea.
Transfer your Balances to another Credit Card
A credit card balance transfer is also quite helpful to save on the total interest outgo on multiple credit cards. If you have been paying the minimum amount due regularly, overdue amount would not have much negative impact on your credit score. And with a fair credit score, you may be eligible for some good balance transfer credit cards. Some such cards would offer amazing introductory interest rate discount and some might as well offer interest-free period on balance transfers for, say, 6 months. Grab one such offer and transfer your balance to it.
How a balance transfer helps?
Credit card balance transfer can be the best option for those who have overdue balance on one credit card which can be transferred to another. A balance transfer helps the user in similar ways a personal loan does, namely-
- It eliminates the interest charges that would add on to the dues every month.
- With comparatively lower rate of interest, the overall outgo would reduce.
- No need to pay in lump sum; the payment is divided into easy EMIs.
This method is especially beneficial if your current credit card has high APR and worse terms and conditions. Moreover, you can also consolidate multiple credit card debts with the balance transfer facility. An important thing to note here is that balance transfer comes with a fee which varies for different credit cards. So, before you select a credit card for balance transfer, you should take this factor into account.
The Bottom Line
So far it is quite clear that personal loan and credit card balance transfer are two effective ways to deal with piled up credit card debt. But how and when to use these is the right question. At the time of using a credit card balance transfer, you need to understand the fees and charges that it entails plus the interest rate balance that you would save. Compare these costs to the amount of savings to decide whether a balance transfer would be a good idea.
Secondly, if you take a personal loan, you should be able to understand that this is also a type of debt and it will have significant impact on your credit score. Unless you treat the root cause of your overdue credit card debt which, in most of the cases, is overspending, personal loan would not be a good idea.
Moreover, once you transfer the balance or pay it off using personal loan, you would free up the limit on your older credit card which means it is ready to use. However, you should not start ringing new bills on the card as it will lead to the same cycle of debt again. Hold back on the expenses for some time.