Using a personal loan for credit card debt could be a good move

get rid of credit card debt with a personal loan

Ignore debt relief ads and consider getting rid of credit card debt by taking out a personal loan with a much lower interest rate. Image: CC TheTruthAbout/Flickr

If you need credit card debt relief, pay no attention to the ads on the Internet or late-night TV. The best way to get rid of credit card debt is to do it yourself, perhaps with a personal loan. Take independent action to boost your credit score faster so you can save money on future borrowing with lower interest rates.

Why credit card debt is so expensive

To find a more manageable way to pay off credit card debt, consider a personal loan. Compared to a credit card, a personal loan can have a much lower interest rate, depending on your credit score. Interest on credit card debt overwhelms so many people because not only are the rates very high, the interest is compounded daily. Some credit cards sock consumers with interest rates as high as 29 percent. Imagine having $10,000 in credit card debt at 29 percent interest. If you paid the minimum monthly payment of $250 every month it would take 143 months to pay off — that’s 12 years.

Why personal loans are so interesting

Using a personal loan for credit card debt relief can save a lot of money with a lower interest rate. Shop around for the best rate possible. Some banks and credit unions have personal loans at between 5 and 8 percent. Call at least three financial institutions. Be honest, and don’t be afraid to explain your situation. If you can manage to find a lender who will give you a personal loan at 6 percent, that $10,000 could be paid off in 45 months (less than four years) with the same monthly payment.

How good credit saves money

By getting rid of credit card debt and faithfully paying down the personal loan, a better credit score will bring many future benefits. For example, a person with good credit can get an auto loan right now for about 6 percent interest. A person with bad credit will pay about 13 percent. That amounts to thousands of dollars over the life of the loan. For a mortgage loan on a $300,000 home, a good credit score will save hundreds of dollars a month in interest and could add up to $100,000 when it’s all over.