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How A Personal Loan Can Help You Get Around Credit Card Debt

by | Feb 16, 2022 | Benefits

Credit card debt is the one thing we all seem to share and have plenty of experience dealing with it. Regardless of your financial situation, there’s nothing easier than pulling out that plastic and getting what you want now, while having to cover the cost of it over a period of time. It’s an indulgence we all know too well. Unfortunately, millions of American’s are stuck in a trap, a financial trap. As they become too dependent on their financing options, their ability to pay the lender back becomes either too difficult or too expensive because of the interest rates.


This mistake hits people so quickly because they do not realize how quick the interest takes over the majority of the payment, especially in debt reaching over $5,000. In some cases, people end up having to pay more for their monthly credit card payments than their rent costs, and the majority of that just goes towards interest. How can people get a head of such debt if it keeps climbing up on itself like this?


Understanding The Credit Card Trap


People focus on the immediate option that they can take care of later. Whether you are purchasing something for fun or out of necessity, you will need to cover that cost eventually, but in smaller increments. The issue usually does not build up completely based on simple over spending. What usually happens is that we get comfortable with a regular monthly payment and we fail to see it creeping into our debt-to-income ratio. Then, the big expenses come in as a surprise.


It could be covering repairs on your car that you were not expecting, needing to get a new television because yours broke, thinking there’s a great deal on a new television that is too good to be true and you can’t afford to pass it up, or other unexpected big purchases that suddenly jolt your loan amount into a much higher monthly payment. The problem from there is that you are still using the plastic to cover the normal expenses you had it covering originally, so now those expenses are compounding on the unexpected ones as well.


What Is A Personal Loan?


Many of us are unfortunately unable to recognize this deconstructive pattern until we are in too much debt. This is where we begin to wonder what are options are, especially if the monthly costs are too high to get around. The best option might be to focus on lowering the interest rate of your debt, in a way that can allow you to cover more of the actual amount borrowed.


A personal loan is a way to borrow money based on collateral, to cover expenses that can include a variety of examples including home repair, tuition, a down payment on a home, car repair, taking a trip, investments and even to consolidate debt.


How To Consolidate Your Debt


A personal loan is not only a great way to consolidate debt, but it is a very common way to consolidate credit card debt over $10,000. The reason is because personal loans are usually far more affordable based on their interest rate. Therefore, you can utilize the loan amount to cover what you owe on the card. By paying off the card, you still owe the amount, but you actually will be saving potentially hundreds a month on the interest.


This method has become such a common solution that lenders will even work with the card companies to ensure that the money is sent directly to them to make the payment on your behalf. Additionally, this is a fast-track way to improve your credit score and repair it from the damage it went through before you could pay off your loans. Making even the smallest financial improvement in your favor is something that should always be considered when you are looking for options.


Playing The Numbers Game


Imagine that you were making $4,000 a month and spending $4,000 a month. Don’t worry about taxes and interest payments for a moment and just focus on those exact numbers. If you could save even $100 a month, you would eventually be able to save up $1,200 for the year. While that may not seem like a lot, it’s more than you would have if you were breaking even every month. Now, think about the situation where $500 a month of those expenses are to cover the interest on money you’ve borrowed and $1,000 a month of those expenses go towards the principle.


That’s a monthly payment of $1,500 towards your debt. Consolidating that debt allows you to get around the numbers by shifting your debt to allow for even the smallest crack of daylight. Yes, you will still owe this money and have to pay it off, but you are no longer getting hit hard by the interest every month. By being able to save hundreds of dollars a month potentially, you can utilize that savings to pay off the debt even faster or cover other uses you have planned for it.


It does not make sense to work each month to break even, especially when you are paying off major credit card debt. If that is the case then you need to seriously consider looking into debt consolidation through a personal loan. It may be the solution that fixes your financial struggles with ease.

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