Do you feel as though you’re constantly drowning under a huge wave of credit card debts? The truth is that most of us don’t have the money in our back pockets, or the help of friends and family to simply write off the debts that we accumulate on our credit cards. Unfortunately, dealing with credit card debt for too long could mean that you end up completely destroying your credit score. As we all know, this could mean that you have no chance of getting a more important loan later, such as a mortgage or refinancing deal.
It’s not much of a secret that too much credit card debt can quickly lead to problems with your financial life. In fact, if you owe more on your credit card debts than you know how to pay off, then you could be in trouble already, and may need to speak to a financial or debt advisor.
So how can you overcome the problem of credit card debt, and why is it causing you so many problems?
The Issue with Credit Card Debt
Credit card debts are a serious problem for more reasons than you might think. A lot of consumers are surprised to learn that even the on-time credit card account charges they deal with can damage their credit score. The truth is, however, that there’s more than just a good payment history involved in deciding what your credit score should look like. Payment history is just one part of what you’ll need to think about.
Sometimes, outstanding credit card debt can still have a negative impact on your credit score even if you’re making your monthly repayments on time. The reason for this is that credit scoring models are designed to compare how much debt you owe to how much you might be eligible to spend. The relationship between your limit and balance is known as the revolving utilization ratio.
You can calculate your own ratio by simply dividing the balance on your card by the credit limit, and multiplying the end result by 100.
Why A Personal Loan Could be a Good Option?
If you’re struggling with paying off your credit card debt and you need to deal with it fast, then you could consider taking out a personal loan to help you manage the payments instead. A personal loan might just seem like you’re switching one debt for another – but it’s actually very beneficial to your finances.
For instance, credit card interest rates are often some of the highest interest rates on the market. It’s not unusual for some credit cards to have huge interest rates that rise over the years. This can even be true for people who have a particularly good credit score. On the other hand, personal loans can be much less expensive overall – particularly if your credit rating is still decent. Although the rates on your personal loan can still change, the interest is often a lot cheaper.
If you’re looking for a more inexpensive way to pay off your credit card debt, then a personal loan could be the perfect solution. Plus, if you have multiple credit card debts to deal with at once, you could always consider consolidating your different debts into a single personal loan for better results over the long term.
Improving your Credit Score with A Personal Loan
Another benefit of switching your credit card debt out for a personal loan, is that it can improve your credit score almost instantly. Personal loans are a type of unsecured loans, rather than a revolving account like a credit card. This means that when you have excess debt on your installment personal loan, your credit score won’t be impacted in the same significant way that it would be with outstanding levels of revolving debt
In fact, you might find that the balance that you’re carrying on your installment personal loan typically doesn’t count against much in terms of credit scoring, so you could be in a better position to achieve more lending opportunities in the long run. In fact, switching to a personal loan could mean that you reduce your risk of being rejected from future loans and lines of credit.
At the same time, if you change the credit card debt into the installment debt that comes with a personal loan, you stop worrying about the problem that comes with revolving utilization. This is because installment debt isn’t going to be factored into your overall problem with things like credit and histories.
If you were to pay your credit card debt off over multiple cards with an installment personal loan, you could find that your debt-to-limit ratio starts to go to zero, which means that your scores begin to shoot through the roof for as long as you’re capable of staying up to date on the payments you need to make with your personal loans.