Individual credit card debt is at an all time high. Individuals today are faced with higher balances on their cards, higher interest rates if the balances are not paid in full, and higher minimum monthly payments. A card with a balance of $4,000 and an average interest rate of 15.0 percent generates approximately $60.00 per month in additional interest. Some cards have interest rates exceeding 25.0 percent and with a balance of $4,000, over $90.00 per month in additional interest is added to the balance.
If an individual has credit card debt and is having difficulty making the minimum monthly payments, or simply wants to reduce debt and free up cash for other uses a credit card loan may be the answer. There are two types of credit card loans; a secured loan and an unsecured loan. With a secured loan, the borrower uses collateral, usually their home to guarantee repayment. The interest rate on this type of loan will be lower than the interest rates on the credit cards the borrower is trying to pay off. The second type or unsecured loan is more difficult to obtain and the interest rate will be somewhat higher than a secured loan, but should be lower than the credit card interest rates.
To obtain a credit card loan a person should shop for the best loan terms available. Interviewing several lenders and comparing the terms offered will ensure the loan will accomplish the objective – eliminating the credit card debt. The credit card loan should have no prepayment penalty and the individual should strive to pay off the loan as soon as possible by making payments in excess of the monthly repayment amount if possible. Once the credit card loan is in place and the balances on the cards have been paid off, the individual should try not to use the cards at all. Running up additional credit card balances and paying off the loan will make the financial ability to repay the loan that much more difficult and as the loan was secured by the home as collateral, the loss of the home is a possibility if the loan is not repaid.
An unsecured loan to pay off credit cards will be more difficult to obtain. The loan will be determined by several factors including the individual’s credit score and if the score is not considered “good” or excellent, the loan will probably not be made. As with the secured loan, an unsecured loan should be in an amount to cover all the credit card debt so the card balances can be paid off, not have a prepayment penalty and the individual should attempt to pay off the loan early by making payments in excess of the monthly amount. Also, the person should refrain from using the cards while paying off the loan.
Obtaining a legitimate credit card loan will enable a person to regain control of their finances and not waste money on high interest credit card debt.