At specific points in time, many of us have found ourselves in such a position, where a bulk sum of money is required for some imminent, urgent need. This need may arise because of healthcare issues, tax payment requirements, commodity acquisitions, or any number of other things.
In order to fulfill the immediate need, one may opt to make a credit card payment. However, credit card bills come with some serious strings attached, having the potential to cause significant financial stress with time if not repaid within the appropriate temporal window. In such a situation, a wise option can be taking a personal loan and using that money to pay off the credit card debts before they accumulate to such a considerable degree as to cripple one financially.
In this article, we will look at the benefits of taking a personal loan to pay off credit card debts and illustrate the easiest and most efficient ways to take such a loan.
Why should one get a personal loan to pay off credit card debts?
When making an emergency payment using credit cards, it is vital to keep in mind the nature of the money being spent. The money deducted as credit is not owned by one but rather treated as an unsecured debt.
However, credit debts can become much more stressful in the long run, and hence it is advisable not to let them remain uncleared for an extended period.
Considering the situation, it is clear that credit debt is taken only when the necessary money is unavailable. Therefore it logically follows that the borrower does not possess enough cash at that moment to be able to clear the debt.
Taking an additional loan to clear an outstanding debt might sound counterintuitive, but this is where the interest rates of personal loans come into play to make the situation interesting.
Lower interest rates:
While credit debts are structurally the same as personal loans, they come with hefty interest rates. Credit card interests can shoot upwards of 45% per annum.
Meanwhile, a personal loan interest rate usually moves within the 10-20% per annum range. Thus if you take a personal loan and pay off your credit card debt, that means you save considerable money in the long run, entailing debt cuts of almost one-third compared to paying the credit card debts by themselves.
Meeting credit score deadlines:
One may think that it would mean no harm to take the time and pay off the credit card debt as and when convenient. However, the situation is not quite so because banks regularly check a person’s payment details, assigning credit scores depending on timeliness or lag in necessary deposits.
If one fails to meet the assigned deadlines for credit card debt clearance, the account will be flagged as “past due.” This will impact one’s credit scores very negatively. In the future, this may cause impediments in taking important loans and create other disturbing scenarios.
Taking a personal loan ensures that the payments are made in time and their credit score is maintained favorably at the bank.
Efficient financial management:
If you have different kinds of debts to be paid to various parties, including but not limited to credit card debts, taking a personal loan can be a brilliant thing to do.
This effectively means consolidating different kinds of loans under the singular umbrella of the personal loan. As the different debts are paid off using the loaned money, one only needs to calculate the amount payable for the personal loan and is free to make private budget plans more efficiently.
One only needs to pay off the entirety of the imposing credit card debt from the personal loan availed. Then they can pay the much easier EMI on loan periodically and thereby maintain a pristine credit score.
How can one avail of a personal loan?
A personal loan can be taken from any reputed financial institution legally registered in the Indian economic system. However, these institutions or banks offer these loans based on specific criteria. Data regarding their income, credit score, employment history, repayment capacity, and such are evaluated by the banks to calculate an estimate for how much money they are eligible to receive a loan.
It is essential to visit an individual banks or NBFCs website and avail of the evaluation tools present there. It will help you to make an estimate of the money you are allowed to get and the amount that must be repaid, on your own, before approaching a bank. The information required is:
- Address of the one applying with proof.
- Age of the person applying for the loan (Banks are legally allowed to give personal loans only to adults over 21 years of age, and the maturity period for the loan must end before they turn 57).
- Income source of the applier as a salaried or self-employed person.
- Average monthly income quantity of the person applying(at least ₹ 13500 is mandatory),
- CIBIL score (at least a score of 600 is mandatory) or Experian score (a score of at least 650 is mandatory).
After entering the relevant data, the calculator at Money View will estimate the amount the applicant is eligible to receive a loan with respect to current financial rates. You must not forget that this figure is a rough approximation of your eligibility. The final figure can be offered only by the lender or the bank after the information is checked from their end.
Other scenarios where taking a personal loan could be beneficial:
- A personal loan amount can be extremely helpful in strategizing and organizing a financial plan which may generate a considerable profit in the long run.
- A personal loan from a reputable institution allows one to avail of certain tax benefits, making it a future-proof plan.
- A personal loan can give any person support during any financial crisis, necessary economic boost for a new start-up, the ability to buy something important in an urgent situation, and many other pressing financial assistance depending on the circumstances the person finds themselves in.
- Interest benefits may also be claimed on a personal loan with respect to the loaned amount in some cases.
- A personal loan can be taken with much ease at almost any point in time as and when one wishes to, coming with the added legal freedom to use that money in any way one wants to.
While a credit card debt may feel manageable on the surface, the various clauses and conditions attached with such a debt, combined with the overwhelming interest rates, make it a daunting prospect.
While allowing you to be free of that debt at one go, a personal loan also helps to alleviate the burden of interest by demanding much lower rates. Moreover, a personal loan can make the periodical payment of EMI easily possible while also having potential tax benefits.
A personal loan can be beneficial in clearing outstanding debts for credit cards, minimizing monetary losses and negative reflections on credit score for the concerned bank(s).
All in all, for any intelligent person with a vision for the future and efficient budgeting in mind, the prospect of taking a personal loan to pay off outstanding credit card debts becomes the obvious choice.