If you are drowning in a sea of credit card debt, you can use personal loans to pay off the balance on your plastic. Debt consolidation offers several benefits to the lender, and is a practical use for personal loan funds. All you need to do is apply for a personal line of credit that pays off your balances; you then need to make only one payment per month. In addition, the interest rate on personal loans is generally better than that of credit cards–usually only 11% versus 20% or more when it comes to plastic. Therefore, using a personal loan to pay off excessive credit card debt can save you a lot of money in the long run.
Step One: Gather All Your Information
Before you apply for a personal loan, you need to gather all the information you need on your credit card and unsecured debt. Make sure you include every credit card, a current balance, and the interest rate you pay in your overall list. If you have other kinds of unsecured debt, such as medical bills, you might consider including those as well. Using your personal budget, try to figure out a reasonable monthly payment that you know you can afford. Finally, figure out how long you can spend paying the debt back.
Step Two: Approach Your Lender
Once you have your total debt amount and an idea of what you can afford to pay and for how long, it’s time to find a bank. You can begin by applying with your own bank or credit union; often they run “sales” on personal loans at certain times of the year. But if you are turned down by your own financial institution, don’t lose hope. You can apply with other institutions online, or even try for peer-to-peer lending, which has fewer restrictions than typical banks have. Most lenders will be more likely to give personal loans if you have a plan for using the money and even come in with a plan to repay the debt responsibly.
Step Three: Pay Off Your Balances–And Keep Them Down
Finally, once you have your loan funds, pay off your credit card debts. While you are at it, unless you have a great deal of self-control, you should think about closing the accounts altogether. There is no sense in paying off the debt with one loan only to run up more unsecured debt. Debt consolidation is a great financial “do-over,” but only if you get your spending habits under control as you pay off your personal credit lines.