Many people are heavily in credit card debt, and quite early in their lives. If you are also in the same boat, you might have heard suggestions to take a loan to pay off your increasing credit card debt. However, is it a good idea?
Credit cards are a great addition to anyone’s wallet, but only if they are used wisely. Having said that, most people get into debt not by just swiping the credit card, but by not paying the dues on time. The high-interest rate of credit cards, as high as 48 per cent per annum, along with late payment fees, is what gets one in debt.
Should you take an additional loan to pay off your credit card dues?
To get out of such debt, clearly availing a fresh loan sounds like a great idea, but should you go for it? Loans such as personal loans, gold loans, etc. have a lower interest rate than the finance charges of credit cards. Experts say one can take a fresh loan at a lower interest rate. Consider personal loans, home loan top-up, or a gold loan that comes with lower rates for a longer tenure.
Personal Loan: Even though one can explore the option of taking a personal loan when deep down in credit card debt, it is not usually advised.
Generally, credit cards levy charges ranging between 36 per cent to 48 per cent, whereas interest on personal loans ranges from 11 per cent to 24 per cent. The interest rate, however, depends on the borrower’s credit score, monthly income, employer’s profile among other eligibility criteria.
Along with the lower interest rates, personal loans come with a tenure that goes up to 5 years, thus, reducing the financial strain on the borrower.
Top-up Loans: Other than taking a personal loan, you can also opt for a top-up loan. However, this will be possible only if you have an existing home loan. With an existing home loan, you can avail of a top-up loan at even lower rates for a longer tenure.
Once you apply for a top-up loan, the lender conducts due diligence on the property and then your top-up loan is approved. With this top-up loan amount, you can pay off your high interest charging credit card dues. According to experts, you can easily get top-up loan approval from your existing borrower, if you have been regular with your home loan for more than 2 years successfully.
Note that there is no tax benefit linked with it, even though the rate of interest is close to the rate of interest of your home loan.
Due to low credit score (because of your credit card dues) there are chances that you will be rejected to avail of a personal loan. In that case, you can opt for secured loans like a gold loan or a loan against securities as their interest rates are much lower than credit card charges.
Main Source - Financialexpress