Should You Use an Installment Loan to Pay Off Your Credit Cards?
Consolidating credit card debts into one monthly installment loan will help you save money. It will however result in higher monthly payments.
Credit card debt is easy to get into. Simply spend more on your cards than you have and continue the process until you reach your limit. It is difficult to get your credit card debt forgiven. There are many options, and not all of them will work.
One option is to consolidate all of your credit cards into one debt such as a personal loans. You can use this loan to pay off all your credit cards. You will also only have to make one monthly payment. This could be your best choice. Learn more at BridgePayday Quick Loans
How installment loans work.
Instalment loans are often used for personal loans. The loan will be repaid in fixed, regular payments. You will repay the loan amount with interest in a lump sum.
The interest rate on your personal loan will be affected by your credit score. How much interest you pay will depend on your credit score. Your credit score will determine how much interest you pay. Your score will affect how risky and how much interest will you be charged.
Interest on installment loans accumulates over time. Interest accrues over time. The interest rate will increase the longer a loan is outstanding. Your interest rate will depend on how much principal is left, so you will see a decrease in your actual interest over time.
Installment loans can be amortizing. Each payment will be used to pay principal and interest. Each loan has a different amortization schedule. You can be certain that every payment you make on time will help get out of debt.
(For more information about installment loans, please refer to the BridgePayday Guide to Installment Loans.
How can a loan help you save money.
This question is easy to answer.
The term of a personal installment loan is between one and five years. It doesn’t matter how long the loan repayment terms are, they will almost always be shorter that what it takes to repay your credit card debts.
Minimum payments for credit cards are typically very low. They account for one to three percent of the outstanding amount each month. If interest rates are included, it could take more than a decade to repay these cards.
Remember that the longer a loan or credit card is outstanding, the higher the interest rate. All things being equal, a shorter repayment term will help you save money.
What’s the interest rate?
The interest rates on personal loans and credit cards are affected by credit scores. You may be eligible for personal loan at a fair rate if you have good credit.
Personal loans generally have a lower interest rate than credit cards. Your personal loan rate will be lower than your credit card interest rates, even if it is higher than you prefer.
Credit card debt can lower your credit score. Credit scores are influenced by how much debt you have. This will reduce your chances of getting an online loan or a loan from brick-and-mortar lenders at a low rate.
This is a Catch-22 situation. To be eligible for low-cost personal loans to reduce credit card debt, first you must pay off your credit cards debt.
What are your monthly bills worth?
Credit card minimum monthly payments, as we have already mentioned, are very low. It’s a double-edged sword; those small payments make it much harder to get out of debt but it also means they’re fairly affordable–especially relative to the amount of debt you owe in total.
Consolidating debt with personal installment loans is difficult because the interest rate is lower but the repayment terms are shorter almost certain that your monthly payments will exceed your minimum monthly credit card payment.
If you’re unable to make your monthly minimum payment on time, consolidating them could be a bad idea. Saving money in the long-term is great, but you still need to be able pay your monthly minimum payment now.
On the flip side, any debt repayment plan will make you pay more monthly than you are currently paying toward your minimum monthly payments. These higher monthly payments should not discourage you. Reduce your budget, and you might consider a side or second job. Then, get cracking!
How can you repay your debt in other ways?
Consolidating your credit cards onto a personal installment loan is a viable method of debt repayment–especially if you’ve got a decent credit score–but it’s far from the only method out there.
Two of the most popular ways to repay debt are the Debt Snowball and the Debt Avalanche. These methods allow you put all of your debt repayment funds towards one debt instead of spreading them around. The difference is in how they prioritize which debts to pay off.
You can start with debt with a lower balance, and then work your way up to higher balance debt using the Debt Snowball. It will be more expensive in the end, but it will give you the motivation to keep going.
However, the Debt Avalanche keeps its eyes on the numbers. The Debt Avalanche lets you prioritize your debts according to interest rate. It will first pay off high-rate debt, and then move on to lower-rate debt. This saves you money but it could mean that your first debt is not paid off.
Credit card balances can be transferred to other cards using zero percent APR deals. There is a grace period, but you could end up with more credit card debt than when you first opened the account.