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Credit Card or Loan – Which Better for Debt Consolidation?

Credit Card or Loan – Which Better for Debt Consolidation?

We all find ourselves in debt at one time or another. Some may find themselves in more debt than others. When debt gets out of control, it can cause added stress and wreak havoc on a budget. According to a 2019 news report by CNBC, consumer debt is at the $4 trillion mark. According to CNBC, this figure came from the Federal Reserve. The report found that “consumers are spending about 10 percent of their disposable income on nonmortgage debts, including credit cards, auto loans, personal loans, and student loans.” There are several different types of consumer debt, as you read, but the most common are credit card debt, medical debt, and student loans. If you’ve found yourself in over your head with debt, you may want to consider debt consolidation with a personal loan or with a credit card balance transfer. Read on for the benefits of each.

Benefits of a Personal Loan

  • Fixed interest rate and fixed terms. See and compare Choice One Community Credit Union’s personal loan rates and terms.
  • Know exactly how much your payments are each month. The amounts will never vary, so it’s easier to budget and stick to your payment plan.
  • Possible lower interest rate than your credit card. Although a credit card company may be offering a low introductory rate, take into consideration what the rate will convert to if that balance is not paid off.
  • Know exactly when your loan will be paid off. It’s nice to know with a fixed monthly payment that the end of debt is in sight!
  • You borrow a set amount, so you won’t spend more. This is a biggie when you opt to use your credit card. It’s easy to lose track of spending and end up spending a lot more than you originally planned. If you choose not to use your credit cards in favor of a loan, you can limit the amount you spend.

Benefits of a Credit Card

  • A low-interest credit card balance transfer offer may be a solution for consolidating those higher-interest balances. Learn more about Choice One’s balance transfer credit card offer.
  • Only use it when you need it. Although it can be a drawback when you use it to freely, it can also be a plus if you can control yourself and limit your purchases.
  • May get some great rewards depending on the type of card you have. Many credit cards offer rewards for purchases, such as cash back, travel offers, merchandise or air miles.
  • Pretty easy to qualify for if you have average or better credit.

Credit Card vs. Personal Loan for Debt Consolidation 

The biggest deciding factor of whether to apply for a personal loan or use your credit card is the amount you will need. It’s time to get a list of your total debt. Be thorough so your sure to consolidate all or as much as you can.

You will also want to consider how long it will take you to pay off the debt. It’s all about paying off the balance quickly. If you don’t feel you can commit to paying off the balance fast, your interest charges can accrue and overwhelm you pretty quickly. It may also be difficult to keep calculating your repayment amount if you continue to add new charges to your credit card while trying to pay down the existing balance. See how easy it can be to become overwhelmed by debt?

Credit history and your credit score also come into play. Unsecured personal loans are not backed by any collateral. If your credit history is poor, you may find yourself with a higher interest rate. This may go for a credit card as well. Better rates are reserved for those with higher credit scores. Check your credit score first. It can be a deciding factor in knowing which will work better for your individual needs. Maybe you already have a credit card with a set interest rate. If you have had a bit of trouble and your credit score is not good, it may not be the right time to apply for a loan.

Compare any fees involved with your loan or credit card use as well. These can include credit card late payment, over-limit fees, and any loan application fees. Finally, if you lack self-control when shopping and have a tendency to spend more than you have, a loan may help you to better limit your spending.

If you find yourself in need of a cash infusion to help pay down and consolidate debt, visit choiceone.org to see and compare our credit card and loan options. You can also easily apply for a credit card or personal loan right online. Be sure to read our Credit Card Best Practices to help you keep your spending under control.