Many Americans ended the year 2020 with large credit card balances, and now with the new year in full swing, they may be looking for ways to chip away at that debt. Carrying a high balance on credit cards not only makes life harder, but it can present a major threat to that person’s financial stability. Several different options are available to consumers seeking to reduce or pay off their large credit card balances. What works for one consumer may not work for another. Ultimately, it depends on the person’s credit history and current financial situation as to what will work for him or her.
Personal Loans
One popular method to pay down a credit card has been by taking out a personal loan to pay off the balance. This method is also known as debt consolidation, and it can be a successful way for consumers to pay down several large balances at once. By taking out a personal loan, he or she can use this money to pay off all these outstanding balances, leaving just the loan balance to pay a monthly basis. It effectively transfers credit card debt to a one, singular debt with a lower interest rate. Not only does this make repaying the amount easier, but it can also often save a lot of money in interest that would otherwise build up over time on multiple credit card balances.
One nice benefit to paying down credit card debt through a personal loan is the borrower will be provided a repayment schedule. This means an end is in sight, and the borrower will know exactly when he or she will be debt-free, so long as he or she keeps up making the monthly payments. In comparison, simply making the basic minimum monthly payments only extends how long the person will paying on the debt. It could take years or even decades to eventually pay down the amount owed.
However, one word of caution should be made with respect to personal loans. While they do tend to have lower interest rates overall, personal loans are unsecured forms of debt, which means that they do have higher interest rates than traditional loans. If the consumer has a less than perfect credit history, the interest rate may be even higher. Additionally, since the personal loans tend to be for larger amounts, their monthly payments are more than the person’s minimum monthly credit card payment. Proper budgeting can help make this easier for the consumer, however.
Balance Transfer Cards
If the consumer is not able to secure a personal loan to pay off debt, a balance transfer credit card can also be another method to accomplish the same goal. Many credit card companies offer promotional rates for balance transfer cards, giving the consumer an introductory period with zero percent APR for a set period of time. Usually, this period is anywhere from twelve months to 18 months. The purpose of having this promotional period of time is to give the consumer an opportunity to catch up on payments and pay down his or her debts quicker. However, it is key that the consumer pay off or significantly pay down the debt during this set timeline. Once the promotional period expires, an interest rate will be imposed, and the consumer may even end up finding himself or herself paying a higher interest rate than before. If no progress has been made on the balance of the card, the consumer may end up in a no-win situation.
At the end of the day, what works for one consumer may not necessarily be a good choice for another. It is best to do the homework and explore what options are available for debt repayment.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.