Credit cards are excellent financial tools that you can use to cover your planned or unplanned expenses. They are like short-term loans that you have to repay by the end of the billing cycle. However, they are beneficial as long as you pay your credit card bills on time. If you delay their payment, the interest charges and other penalties may accrue, and you may soon find yourself in a never-ending debt trap.
If your credit card bills have started haunting you, a possible solution would be to pay them off using personal loan finance. These are unsecured personal loans that have lower interest rates than credit cards. They can help you pay off your credit card outstanding balance and give you a chance to improve your credit score. Although you will find hundreds of lenders offering personal loans in India, you should choose one that best suits your needs. These are a few things to keep in mind while availing a personal loan to pay credit card bills.
Things to Keep In Mind While Availing Personal Loan To Pay Credit Card Bills
- Interest Rates: The primary purpose of taking a personal loan is to save on the interest charges. Credit cards have hefty interest rates that make repayment challenging. Personal loans come with lower interest rates that can help you save money and pay off the credit card outstanding balance. However, be sure to check the interest rates charged by the personal loan lender before accepting their loan offer.
- Eligibility Conditions: A personal loan eligibility check is crucial before applying for one. Ensure that you meet the lender’s eligibility conditions, no matter how simple they are. Applying for a loan that you are not eligible for will only lead to loan rejection and a reduced credit score. Therefore, check the lender’s eligibility criteria before applying for a personal loan to pay credit card bills.
- EMI Amount: By taking a personal loan, you distribute your credit card outstanding balance into easy EMIs spread across several months or years. Therefore, doing this will make the repayment easier than before. However, you must check the EMI amount and ensure that its affrdability within your monthly budget. A personal loan EMI calculator is an excellent tool that gives an idea of your EMI amount. Accordingly, select your loan tenure with the EMI amount you can conveniently afford.
- Repayment Tenure: Most personal loans come with flexible loan tenures and you can choose according to your repayment capacity. The longer the loan tenure you choose, the smaller the EMI amount will be, but the higher the interest outgo. On the other hand, if you select a shorter loan tenure, the EMI amount will be higher, but you will save big on the total interest cost. Therefore, choosing the shortest possible loan tenure with the highest EMI amount as per your repayment capacity for each month is crucial.
- Debt-to-Income Ratio: DTI ratio is the percentage of the monthly income you spend for your other financial obligations. Ideally, this number should not be more than 30-40% of your earnings. If you pay a large percentage of your income for other loan EMIs, insurance premiums, and credit card bills, you may face loan rejection, or the lender may charge you a higher interest rate than usual. Therefore, try to pay off your existing loans and reduce your Debt to Income Ratio before applying for a personal loan.
- Credit Score: A credit score is a 3-digit number that credit bureaus give based on your credit history and repayment habits. If you have missed your credit card bills in the past, the chances are that your credit score would be low. Ideally, lenders prefer borrowers with a credit score of at least 700. If you are facing difficulty paying your credit card bills, it is best to take a personal loan and pay them off before your credit score goes lower than 700.
Availing personal loan finance to pay your credit card bills is one of the wisest steps you can take. It saves you from a debt trap and helps maintain the credit score. Therefore, choose a lender offering the most competitive interest rates on personal loans and use the loan amount to pay off your credit card outstanding balance.