How to Use Personal Loans to Pay Off Credit Cards

How to Use Personal Loans to Pay Off Credit Cards

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Lenders are changing their ways

Many consumers are using personal loans to manage their credit cards. With the recent lending crash, many credit card companies are no longer playing fair. Lenders lost billions of dollars throughout the recent recession and their answer to lax lending laws, was to tighten up regulations for existing customers. Though it hardly seems fair that even those with excellent credit are seeing changes in their terms, it is the repercussion of a faltering industry.

Pauline Meiner, of Toledo, Ohio, recently found herself in the midst of the credit card backlash. She’s been a loyal customer of her bank for over fifty years. She has a savings, checking and credit card with her local bank and has never been late on a payment or over-charged on an account. Despite her flawless record, she received a notice from the bank that her interest rate was skyrocketing from a fixed rate of 9% to an adjustable one. This is cause for concern because an adjustable rate means just that—it can change with the Index and market at any time.

The solution for handling credit

For anyone in Meiner’s position, it’s important to understand how to overcome the credit card company’s rules. Credit lenders are going to continue to protect themselves, even if it jeopardizes good customers. Here are three rules to remember when it comes to credit cards:

  1. Pay down any balance as quickly as possible
  2. Transfer debt to lower fixed-rate accounts
  3. Don’t carry a balance from month to month.

These are all important to understand if you are going to master your credit card health. Here is a breakdown of each one.

Pay down balances quickly

The best thing you can do for your credit is to pay down any balance you have as quickly as possible. The longer you have a balance and the longer you carry it, the more money you are handing over to your lender in interest. The credit crash of the recession made good paying customers sparse. For that reason, lenders are trying to generate as much income as possible from their good customers. The best thing any borrower can do is pay down their overall debt. Sometimes low-interest personal loans used to pay off credit card debt are more advantageous than struggling with a big balance.

Transfer debt to lower fixed-rate accounts

It’s important to keep credit on a fixed-rate basis rather than an adjustable one. Lenders are trying to move towards the adjustable rate because it serves them better. Having an adjustable rate allows credit card companies to raise your rate as they see fit. Part of the problem is that in general, the credit market has seen a huge and formerly profitable segment of their customer base disappear. If there is one thing lenders have learned from the recession, it is to deny subprime accounts. Due to the smaller customer pool, they have to make up their money somewhere, and that’s where even the best customers get burned.

Eliminate month-to-month balances

The worst thing you can do with credit is hold a balance from month-to-month. For example, carrying a $2,000 balance and paying only the minimum can mean over a decade of payments for a consumer. That interest rate adds up over time and credit card lending companies make a huge profit. For any customer who wants to cut back, paying off carry-over balances on credit cards is imperative.

Managing credit post-recession

It’s important for every credit card borrower to manage their credit wisely. Now that credit card lenders are no longer lax with lending rules, it’s even more important for consumers to look out for themselves. The three main ways to manage your credit are to pay down balances quickly, look for lower fixed-rate cards and eliminate the habit of carrying balances over. Use savings or personal loans to bring down credit and see how much money you can truly save.

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