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Should you use a personal loan to pay off credit card bills? Pros and cons here
Credit Card: By taking a loan to clear off the debt, your credit score that had taken a hit due to delayed payment will stop degrading further.
Managing your finances can be a difficult task. Have you ever faced a situation wherein you swiped your credit card to pay off a bill and then forgot to repay it, leading to a lot of penalty and interest charges by the time you realized your mistake?
Well, using a credit card offers a variety of benefits: rewards and bonuses, positive credit history making taking loans easier, funding expenses in cases of emergency, budgeting finances by keeping track of your expenses, purchase protection against theft etc, travel benefits like free lounge access, etc.
However, what if you fail to repay the amount timely? Is repaying the delayed credit card bill by getting a personal loan a good idea? Let’s try and analyze the situation:
Pros:
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A personal loan usually has a lower interest rate than the interest charged on the credit card.
Personal loans come with a fixed repayment term, allowing you to know exactly when you’ll be debt-free. On the other hand, credit card payments can be extended indefinitely if only minimum payments are made.
By taking a loan to clear off the debt, your credit score that had taken a hit due to delayed payment will stop degrading further.
Cons:
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For getting a loan, you would require a good credit score, hence, the first and most important thing should be to maintain a good credit score by paying off your dues on time.
This might inculcate bad spending habits, as this might look like a tempting way out, but will only be helpful in the short term.
Taking a loan is just an additional debt adding to the burden.
What to do?
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Compare the interest charged on the personal loan and your credit card to derive a meaningful conclusion.
Keep a check on your finances and analyze if you can pay the dues without the loan because too many loans can impact your credit score.
Inculcate the right budgeting and financing habits, by keeping a tab on which payments are pending and timely paying them off by setting weekly/monthly reminders.
So, in the short-term approach, taking a loan could be a viable option, but a sensible and far-fetched approach would be to use credit cards judiciously, maintain a good credit score, and be financially prudent and aware.
