Debt is a growing problem, with money problems on the increase. For example, in the UK alone, one-third of adults are in debt to the tune of £9,000 and this figure is continuing to rise. If you are one of these people facing mounting debts and credit card repayments, you may be searching for a solution.
One way of doing this could be to pay off credit cards with an unsecured personal loan. If you are considering this option, below are the pros and cons.
Only One Payment
Keeping track of when your credit card payments are due, and how much is owed, can be difficult. What’s more, if you are late or miss a payment, you could be charged a fee, costing you more in the long run. However, having one monthly loan payment could allow you to take control of your finances. In addition, making regular monthly loan payments over a couple of years could also help you to budget for your monthly outgoings and could even help improve your credit rating in the long run.
Lower Interest Rates
Depending on your personal circumstances and credit history, an unsecured personal loan may offer lower interest rates than the rate you’re paying.
This could result in lower monthly payments, helping you to clear your credit card debt once and for all.
No Collateral Required
With a secured loan, a lender will use your assets (such as your home or car), as collateral against the amount you borrow. They do this to ensure that should you fail to make repayments, they can possess these assets to recover the money owed.
Smaller Loan Amounts
Because they are not secured against assets, lenders view unsecured loans as a higher risk. To mitigate this risk, unsecured loans are typically available in smaller amounts.
This means that if you need to borrow a large sum to cover your credit card debt, an unsecured personal loan may not be the best choice.
Longer Term Borrowing
While the interest you pay on an unsecured loan may be lower than paying all your credit card repayments separately, when working out the total cost, you should also consider the term. This is because a loan is usually repaid over a designated period, which could mean making repayments for a longer amount of time. As such, consider the term before taking out a loan to consolidate credit card debt.
Deciding if a personal unsecured loan is the right option will depend on your situation. To help, consider all the above points, assess your current circumstances and credit card debt, and if in doubt, always seek financial advice.
*This is a collaborative post*