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Pros and Cons of Moving Credit Card Debt to a Personal Loan

woman weighing her options

You might be staring at your credit card bill(s), wondering if you’ll ever get out of debt. Maybe you considered trying a personal loan but are wary about applying for another loan or know that you can’t get one due to your financial history.

Keep reading to learn if you should move your credit card debt to a personal loan and how to get a personal loan with poor financial history.

Questions About Credit Cards

There are nuances about credit card use that can trip you up and create a lot of credit card debt.

Why Is It a Bad Idea to Borrow Money From Your Credit Card?

Borrowing money from your credit card is when you use your card’s limit to get physical cash. Many people think this is a great way to obtain extra money since a credit card doesn’t require applying for a loan or require another credit check. But it’s not everything it’s cracked up to be.

Most credit card loans have the same interest rate as using a credit card for purchases, and additional fees usually make this option more expensive.

Do Credit Card Companies Ever Forgive Debts?

Rarely. Most credit card companies are unlikely to completely forgive debts. However, they may be willing to accept a smaller payment and forgive the rest. Even with that, only extreme situations will get that kind of offer.

Remember, you must haggle with the company; they won’t just offer it.

Can Credit Card Debt Be Transferred?

Yes, you can transfer credit card debt to another card. Credit card balance transfers are when you move your debt from one card to a new one to take advantage of a lower promotional interest rate. However, depending on the card company, you may have to pay transfer fees.

A critical goal of a credit card debt transfer is to pay off the debt before the promotional interest rate expires.

Questions About Personal Loans

When you need a lot of money, you can get a personal loan from a lender. Most of the time, people use this type of loan to get a car, pay a significant expense, or pay off a debt.

Is a Personal Loan Good or Bad Debt?

Personal loans can be both good and bad debt. It’s all about what you’re using it for and how you handle paying it back.

It will be considered good debt if you get a personal loan to consolidate your debt and you’re on time and consistent with paying. It will become bad debt if you get it to buy expensive clothes you don’t need, it has high interest, and you can’t pay it back.

Does Getting a Personal Loan Lower Your Credit Score?

Temporarily it can, because applying for a personal loan will lower your credit score for a short time. Your score can also decrease if you don’t consistently make timely payments.

Is Applying for a Personal Loan a Hard Inquiry?

Yes, it is. A hard inquiry is the reason that applying for a personal loan will lower your credit score for a short time.

Making the Decision to Move Credit Card Debt to a Personal Loan

Your decision to move credit card debt to a personal loan depends on the situation. Below are the pros and cons.

What Advantage Does a Personal Loan Have Over Credit Card Debt?

The advantages of using a personal loan for credit card debt are:

  • couple considering personal loan or credit card debtLower interest rates: Credit cards are notorious for their high interest rates, making them so difficult to pay off. A personal loan tends to have lower interest rates, making it easier to pay off and save money in the long run.
  • Potentially paying off your debt sooner: With a personal loan, you may be able to pay off your debt faster. Who doesn’t want to be debt free faster?
  • Consolidated payments: If you have multiple credit cards to pay off, putting all the debt into a personal loan creates a single monthly payment to worry about—which is way less stressful.
  • Increased credit score: Taking out a personal loan can help improve your credit score when you make timely payments as it proves you can manage your money.

What Is the Disadvantage of a Personal Loan Over a Credit Card?

Here are the disadvantages of using a personal loan over a credit card:

  • Loans aren’t Guaranteed: You must apply for a personal loan, and not everyone can get one. Whether it’s due to credit history, income, or the amount of your debt, a lender may reject your loan application.
  • Credit cards offer additional benefits: Some cards have rewards, such as gaining points for various purchases.
  • Personal loans don’t always have a lower interest rate: While it’s common for personal loans to have lower interest rates, it’s not guaranteed. Depending on your credit history, your interest might not be any lower than your credit card.
  • Monthly payments may be higher: Your monthly minimum payment with a loan may be larger than your credit card payment.

When Can Personal Loans Be a Better Option Than Credit Cards?

Because of their favorable interest rates, personal loans can be a better option if you need a large amount of money and have a good credit history and credit score. Taking a large amount of money on a credit card can mean it will take longer to pay off the debt.

What Counts Against Credit More, Personal Loans or Credit Card Utilization?

Neither counts more than the other; it’s about how you handle each option. Your FICO credit score consists of the following:

  • Payment history (35%): whether or not you’ve paid past debt on time.
  • Accounts owed (30%): how much of your credit card or loan you use.
  • Length of credit history (15%): how long your credit history has been established.
  • New credit (10%): how often you open new loan/credit accounts.
  • Credit mix (10%): the different types of debt you have, like personal loans and credit cards.

It’s Better to Move Credit Card Debt to a Personal Loan

Moving your credit card debt to a personal loan is better for you in the long run. Between offering a streamlined monthly payment (if you have multiple cards) and the ability to boost your credit score, loans are just more manageable than trying to pay off your credit card debt.

If you require a personal loan but need help getting one due to your credit history, Power Finance Texas can help. We even offer same-day funding via debit card.

Contact us today to get the process started!