Using a personal loan to pay off credit cards:

OK so you've got credit card debt - what are YOU going to do about it.  First you need to take charge (no don't go charge - take charge - insert chuckle here).  You have three options:

1) file bankruptcy.  Yes it's an extreme response - but if you are so far in over your head it is an option.

2) stop paying on your cards and then negotiate a payoff.  Ever hear those commercials on the radio that say "we are the people that your credit card companies don't want you to know about - we can pay off all your debt"?  Well this is what they do.  They tell you to stop paying on your debt - wait 3 - 4 months.  Then they call and settle your debt for you for a small percentage of the original balance.  They will usually fish around to see if you have had a death or medical illness in your extended family and use this as your reason for falling behind on your debt.

3) Take charge and pay it off.  In order for this to work you also have to STOP incurring new debt AND start paying off your old debt - this means making more than the minimum payments.

Alright so most people are going to choose option 3 above and try to start paying off their debt.  Now let's talk about the title of this article "Using a personal loan to pay off credit cards".  At a glance, interest rates of personal loans are higher compared to credit card interest rates, but the speed with which the interest on credit card debts pile up can wreck havoc on your budget and your peace of mind.

Personal loans can be paid in easy installments, it looks better on your credit report than the revolving credit of credit cards. The fact that a personal loan has no compounded interest makes it a better alternative to get rid of your credit card debts.  Having an installment loan at close to or at the high credit limit will hurt your credit score FAR LESS than having a credit card at or near its limit so you could get an immediate score improvement for consolidating credit cards onto a personal loan.

Where do you get a personal loan?  Try your local bank or credit union - they will most often have the most aggressiveterms and rates.  In my area you can expect to pay 12% interest on a personal loan with a term of 2-5 years.

Here is where most people make a mistake:  Ok so now your credit cards are paid off and you have a personal loan which you will be paying every month to get debt free.  STOP USING YOUR CREDIT CARD!  I have one simple rule - if you can pay the bill in FULL at the end of the month then you are allowed to charge it - if you can't - then you can't afford to buy it today - you will have to wait!

:)

Matt Listro

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