Is It Okay To Take A Personal Loan To Pay Off Credit Card Bills?
Credit cards have increased the purchasing power of people. According to a report from CredoLab, a digital credit scoring platform, the credit card user base in 2019 reached 470 lakh and the market is expected to grow at a compound annual growth rate (CAGR) of over 25. % over the period 2020-2025.
Due to the growing tendency to buy products first and pay later, it is possible for an individual to spend too much money on a card and skip payments or just pay the minimum amount. As a result, they could be trapped in debt, as credit cards attract high interest rates for late payments.
While there can be many ways to deal with this situation, one of the most popular is to take out a personal loan. If the credit card bills are too high, personal finance experts advise taking out a personal loan to pay the dues. However, there are certain concerns that an individual should take into account when selecting this path, they suggest.
How Can Personal Loan Help Cope With Credit Card Bills?
Low interest rate
The interest payable on personal loans is comparatively lower than on credit cards. This means that one has to pay the IMEs at a lower interest rate.
A personal loan could be used to consolidate credit card debt.
“If an individual has outstanding balances on multiple cards, a personal loan can be used to pay off all of those debts. Therefore, he only has one NDE left instead of several NDEs, ”explained Bhavin Patel, Founder and CEO, LenDenClub – a peer-to-peer platform.
Determination of the amount / duration of the EMI
Loans can also help determine which EMI is best for an individual. “The personal loan provides the flexibility to choose an affordable EMI amount. It also comes with flexible prepayment and foreclosure terms,” Patel said.
Personal loans, unlike credit cards, even allow an individual to choose the repayment term.
Improve credit card score
Being in neck debt with credit cards means customers have low credit scores. “So if you can’t afford your credit card dues, it’s a good idea to take out a personal loan. Once done, customers can repay the loan at comfortable IMEs, which in turn will improve credit scores. According to Bankbazaar – a marketplace for financial products.
What are the concerns?
When selecting a personal loan, customers should be careful because not all lenders offer low interest rates on loans. In some cases where a person has a very bad credit rating, there is a good chance that the loan will be rejected. Some personal loans can even require a person to pay prepayment charges and other fees.
Financial experts therefore advise to choose personal loans according to their financial situation.
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First publication: STI