Homepersonal finance News

    Is it okay to take a personal loan to pay off credit card bills?

    Is it okay to take a personal loan to pay off credit card bills?

    Is it okay to take a personal loan to pay off credit card bills?
    Profile image

    By Anshul   IST (Updated)

    Mini

    On account of growing trend of purchasing products first and paying later,  there are chances that an individual may overspend on a card and skip the payments or just pay the minimum amount. 

    Credit cards have increased the spending power of people. According to a report of CredoLab, a digital credit scoring platform, credit card user base in 2019 reached 470 lakh and the market is expected to grow at a compound annual growth rate (CAGR) of more than 25 percent during 2020-2025.
    On account of growing trend of purchasing products first and paying later,  there are chances that an individual may overspend on a card and skip the payments or just pay the minimum amount.  As a result, they might get trapped in debt, as credit cards attract hefty interest rates on paying late.
    Also read
    While there might be many ways to tackle this situation, one of the most popular way is taking a personal loan.  If credit card bills are too high, personal finance experts advise to take a personal loan to clear dues. However,  there are certain concerns which an individual should take care of while selecting this path, they suggest.
     How can personal loan help in tackling credit card bills?
    Low interest rate
    The interest payable on personal loan is comparatively lower as compared to those on credit cards. This means that one has to pay EMIs at lower interest rate.
    Debt consolidation
    A personal loan could be used to consolidate credit card debt.
    "If an individual has outstanding balances from several cards, a personal loan can be used to pay all such debts. As a result, he/she just has one EMI left as opposed to multiple EMIs," explained Bhavin Patel, Founder and CEO, LenDenClub - a peer-to-peer platform.
    Determining EMI amount/tenure
    Loans can also help in determining an EMI that is best suitable for an individual. "Personal loan offer the flexibility of choosing EMI amount that is affordable. It also comes with flexible prepayment and foreclosure terms," said Patel.
    Personal loans, unlike credit cards, even allows an individual to choose the duration of the repayment tenure.
    Enhancing credit card score
    Being neck-deep in credit card debt means customers have low credit score. "So, if you are unable to pay your credit card dues, it is a good idea to take a personal loan. Once that is done, customers can repay the loan in comfortable EMIs which will, in turn, enhance the credit scores," according to Bankbazaar - a marketplace for financial products.
    What are the concerns?
    While selecting personal loan, customers need to be careful as not all lenders offer low interest rates on loans. In some cases where an individual has a very bad credit score, chances are high that loan might be rejected. Some personal loans might even require an individual to pay prepayment charges and other fees.
    Financial experts, hence, advise that one must choose personal loans depending on their financial situation.
    Disclaimer: CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
    arrow down

      Market Movers

      View All
      CompanyPriceChng%Chng