Using a personal loan to pay off bills can make a lot of sense. Advantages include:
- Lower your interest rate
- Accelerate your repayment
- Make budgeting easier
- Increase your credit score
According to the Federal Reserve, total outstanding consumer debt in the U.S. was over $4.04 trillion as of February 2019 and outstanding revolving debt — which is mostly credit card accounts — was well over $1.06 trillion.
If part of that debt is yours, you may be wondering what to do next. Fortunately, there is one financial tool that can help you dig your way out — a personal loan. With a personal loan to pay off bills, you can transform your finances in one fell swoop and save money along the way.
Benefits of using a personal loan to pay off credit card debt
Borrowing money may seem like an unlikely strategy to get out of debt, but there are plenty of reasons to consider a personal loan. Here are the advantages of using a personal loan to pay off bills.
Save money with a lower interest rate
Considering the average credit card APR is now over 17%, it’s easy to see how consumers get into financial trouble. But this is where personal loans can help improve your situation. With good or great credit, you may be able to qualify for a personal loan with a fixed interest rate as low as 4.99%.
What kind of difference can that make? Imagine you have $10,000 in credit card debt with an average APR of 18%. If you were paying $200 per month toward your debts, it would take you 94 months to pay off your balances. In the meantime, you would fork over $8,622 in interest payments.
Now imagine you applied for a personal loan for debt consolidation with a new APR of 4.99%. If you made the same $200 payment each month, you could become debt-free in 57 months. You would also pay only $1,234 in interest during that time. That’s a difference of over $7,000!
Pay down debt faster
The example above illustrates yet another inherent benefit of using a personal loan for debt consolidation. Not only can you save big money on interest payments, but you can also pay down debt faster.
With less of your monthly payment going toward interest each month, more of your payment pays down the principal balances of what you actually owe. This speeds up the debt repayment process, saving you money and time.
Simplify your finances
Saving money is always good, but using a personal loan for debt consolidation can also make debt repayment easier. Instead of having several different credit card payments and bills to pay each month, a personal loan would leave you with a single payment to make.
Having fewer bills to pay will be a net positive for not only your budget, but also your sanity.
Increase your credit score
When you apply for a new loan and get approved, you’ll effectively increase your available credit and lower your credit utilization in the process. That’s why taking out a personal loan may can boost credit score — but only if you keep your old credit card accounts open.
Also note that your credit score can increase even more as you pay down debt. That’s because your credit utilization is the second most important factor that makes up your FICO score. The less you owe, the lower your utilization will go.
Secure a fixed monthly payment and payoff date
Finally, personal loans come with another benefit that can make debt repayment easier. Where credit cards come with variable APRs and monthly payments that fluctuate based on how much you borrow, personal loans (usually) feature fixed interest rates, fixed monthly payments, and a predetermined payoff date.
If you know exactly how much you owe each month and exactly how long you must make those payments, it’s a lot easier to stick with a debt payoff plan.
The bottom line
Tired of dealing with credit card debt and other bills? Consider borrowing more money and consolidating your debts with a personal loan. Doing so could allow you to save thousands of dollars in interest and pay your debts off a few years ahead of time.
It’s important to note, however, that consolidating debt does not make it magically go away. Don’t crash and burn by racking up more debt on those zeroed-out credit cards. If you refrain from carrying balances, paying off your personal loan should leave you with no revolving debt and a better handle on your finances.
The best part is that you can apply for a personal loan online with a few clicks of a mouse. Compare offers from competing providers and choose the best plan for getting out from under your debt.