Should You Use A Personal Loan To Pay Off Credit Card Debt?

It may sound counterproductive, but taking out a personal loan COULD help you get out of debt faster. So, next time, you might want to think twice before rejecting that call from your bank.

My credit card statement read $10,000 when I first considered taking out a personal loan to pay off credit card debt I had racked up. It would take me over a year to pay this off if I let the interest keep rolling. Taking a personal loan would curb that and I would have to focus solely on paying back the fixed sum every month. 

But I wasn't sure if this was the best thing for me to do. 

At first glance, it doesn’t seem to add up, right? But whether you're like me - and had built up a mountain of credit card debt - or whether it is to help tide you over during a tight financial period or even for something more personal, like a wedding, we're here to see if it makes sense for you to take out a personal loan.  

Why it is a good idea to take out a personal loan to pay off credit card debt

loan to pay off credit card

Source: Unsplash

Depending on your financial circumstances, taking out a personal loan to pay off credit card could prove to be the first step towards getting back on your feet.

1. Lower interest rate

If you have a good credit score, you stand to have a loan approved with a lower interest rate than your credit card. As low as 4% per annum, you could save hundreds or even thousands in the long run! Personal loans are normally at a fixed rate as well, unlike credit cards with variable interest rates that keep compounding as months of unpaid debt go by.

2. One payment instead of several

If you have different credit cards and are unsure how to juggle them, consolidating the debt into a single payment can make life a lot easier for you. Rather than worrying how much to pay different lenders, you can focus on just one amount each month. One less thing to stress over!

3. Quicker debt payoff

Let’s be honest – no one enjoys being in debt! Using a personal loan to pay off credit card debt means you chip away at the debt in monthly payments. In some cases, depending on how long your loan tenure is, you may be paying more each month than your credit card. But note that credit cards don’t have a set repayment date, which means you can be paying a debt off for much longer than anticipated.

4. Quick approval rate

The normal turnaround time for your loan application to be approved is relatively short, with most banks saying yes after 48 hours of submission. This can be very handy if you’re really in a fix, and have a plan of action on tackling your debt.

How it can backfire

loan to pay off credit card

Source: Pixabay

While it sounds like it’s a good idea to help with debt management, using a personal loan to pay off credit card debt has other risks to consider. This approach may not be for everyone, and here’s why.

1, Higher interest rate

If you haven’t been paying off your credit card bills in a timely fashion, you’ll likely have poor credit score. And whilst banks can still offer you a personal loan, the interest rate may not be any higher than what you’re already paying on your credit card! So be sure to check and do the math before committing to the loan.

2. Origination fee

Some banks charge a preparation fee in order to get you started, normally a percentage of the total amount of the loan. These minor fees can add up and end up making the personal loan more expensive to pay off, even with lower interest rates! Try to go for personal loans that don't have this extra fee.

3. Debt obligation

This is just a fancy way of saying “It’s still debt!”. Just because you’ve paid off the scary credit card bill with a well-organised financial plan to pay off credit card debt doesn’t mean you can go on a spending spree! If spending habits are still impulsive and frequent, no amount of personal loans can fix spending behaviour. 

Plus, don't forget that the personal loan will add to your total debt servicing ratio and could affect your chances of applying for a loan for a car or a house.

Personal loans in Malaysia

loan to pay off credit card

Source: PxHere

So with this in mind, we’ve come up with a list of personal loans on offer that might be useful for you to consider. Note - these loans are applicable to Malaysian residents or citizens only.

1. Alliance Bank CashFirst Personal Loan

This deal is useful for anyone needing financial help with debt management. Because of the relatively low interest rates and eligibility requirements, this deal is suitable for most of us. As long as you’re a Malaysian citizen or permanent resident, you’re good to go (even if you live in Singapore!).

  •       Loan amount (min-max):             RM5,000.00 – RM150,000.00
  •       Interest rate:                                    Fixed rate of 5.99%-14.78% (depending on your financial profile)
  •       Age (min-max):                               21 – 60 years old
  •       Loan tenure (min-max)                 1 – 7 years
  •       Approval time:                                Up to 48 hours
  • 2. RHB Easy-Pinjaman Ekspres

    This loan might be a better choice if you require a larger loan to pay! Because interest rates decrease by tiers depending on the amount loaned, lower rates are applicable to the highest amount borrowed. A more viable option to pay off larger debts.

    •       Loan amount (min-max):             RM2,000.00 – RM150,000.00
    •       Interest rate:                                   Fixed rate of 8.18% - 14.52% (depending on your financial profile)
    •       Age (min-max):                              21 – 60 years old
    •       Loan tenure (min-max)                1 – 5 years
    •       Approval time:                                Available immediately after verification

    3. Standard Chartered CashOne

    Applying for the CashOne personal loan grants you a Standard Chartered Platinum with a waived annual fee for life!  Also, any repayment on the loan is converted into a credit card limit. Maybe you can use this personal loan to pay off credit card debt and improve credit in one fell swoop!

    •       Loan amount (min-max):             RM3,000.00 – RM250,000.00
    •       Interest rate:                                    Fixed rate of 6.99% & above (depending on your financial profile)
    •       Age (min-max):                               21 – 60 years old
    •       Loan tenure (min-max)                 1 – 5 years
    •       Approval time:                                 Up to 5 business days

    Debt consolidation is doable through a personal loan, and many choose this option. With all the information at your fingertips, your own research may reveal it’s not the right choice for you. In summary, as long as you continue to make smart decisions, you will handle your debt in no time.

     

    So what do you think? Should you really use a personal loan to pay off credit card debt? Leave us a comment with your thoughts!

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