Is it better to get a Personal Loan to Pay Off your Credit Card debt

No doubt, an outstanding balance on your credit card can pull you and your life down. It can downsize your budget for years and maybe for decades. That is why it is also essential to make the monthly payments on time, which are due on your credit cards. But somehow due to some unfavourable circumstances if you accumulate that debt, it is very stressful. And what is more problematic is that if you don’t handle it quickly, it can create quite a ruckus in your overall well being.

Before knowing the pros and cons of making use of a personal loan to pay off your credit card debt, there are some points to get acquainted with. The first would be to find out whether this move would be the right one for your finances. When you possess an excellent credit score in UAE, then you should be better off availing a balance transfer credit card which provides a 0% introductory interest rate. So you can now pay off the debt without any need to pay interest. But this happens only in cases when you pay off your outstanding card balance until the APR introductory period is valid.

If you are planning to get a personal loan, you should aim to get a personal loan with a lower interest rate than what you are paying currently on your credit card.

Things to consider in a Personal Loan

Before you consider taking up a personal loan, go through the below-mentioned factors:

  • Interest Rate: The rates of personal loans in UAE are as low as 2.19% and the rate which is offered to you has a great impact on your monthly payment apart from the overall interest you pay.
  • Term Duration: In UAE, almost all personal loans have a term duration or length up to 48 months. This is the duration in which you have to pay back the full balance. Low rate of interest on your personal loan but having a longer payback term can surely cost you a lot in the long run.
  • Fees: If you are taking a personal loan in UAE, make sure you check for lenders who charge additional fees on personal loans like arrangement fees or any prepayment fees. Such fees can increase the overall cost of the personal loan.
  • Personal Loan Amount: In UAE, maximum personal loan amount can go up to AED 2000K. But what you need doesn’t mean the lender will approve it.

Check: Few tips to find the best personal loan in UAE

Is it fine to avail a Personal Loan?

The availability of personal loans seems like an attractive option when the debt or outstanding balance on your credit card is a high amount. This is because a personal loan can help you to get rid of the loan on your credit card which makes you pay a massive amount of interest and make it look feasible to pay back the personal loan with a low-interest rate.

Therefore availing a personal loan to get rid of and clear off your credit card debt can assist you to save a lot of money which you pay as interest and most importantly. Also, free yourself from the clutches of the debt rapidly. This way is suitable only for the short term and pays proper attention if the problem persists over a long time. Then you should go deep to find the leading cause of your debt on credit card and the reasons for this.

To help you decide whether you should go for a personal loan to pay off your credit card debt, make sure to read the following pros and cons.

The Pros of making use of a Personal Loan to Pay Off your Credit Card Debt

Many advantages exist to make use of a personal loan to pay off your credit card debt. Although not all are functional to all personal loan applicants, individuals in UAE with an excellent financial standing can have these benefits:

  • Low Interest Rate: The rates of interest which are charged on personal loans in UAE are definitely below the interest charged on credit card debts. So if you have a good credit report in UAE then by paying off your high-interest credit card debt with a personal loan, you could save a lot in the interest charges levied.
  • One Payment Only: When you own multiple credit cards, with only a single personal loan, you could pay the debt off with one payment only by consolidating the payment. So it becomes effortless for you to manage the repayment process and also ensure that your payments are made on time. This saves unnecessary stress of forgetting the due payment dates and later on paying penalties.
  • Less Utilisation of Credit: When the total credit limit on your credit cards is more, and you have a less outstanding balance. It results in a low credit utilization, which ultimately levels up your credit score, additionally making you easily qualified for future mortgages or any other kind of loan.

Read about: How to get out of your credit card debt in UAE

Cons of making use of a Personal Loan to Pay Off your Credit Card Debt

Although using a personal loan to pay off your credit card debt does sound beneficial and is definitely for many, yet there are some potential cons which people residing in UAE should consider:

  • Probability of a Higher Interest: In most cases, the interest charged on a personal loan is less than the interest which you pay on your credit card debt. But if you have a poor credit score, then you may be eligible for a personal loan only with a high rate of interest. So if the interest you pay on your personal loan rate is not lower than the interest you pay on your credit cards, then there is not much benefit to consolidating.
  • Lenders Fees: Many loan lenders charge fees on your loan apart from the interest. This can be an arrangement fee or fee when you close your loan account early as a prepayment penalty. This kind of fees, when charged, can make your loan very expensive. So make sure that you properly find out from the lenders in UAE about the different fees they charge to find out if a personal loan is a cheap option.
  • Similar Spending Habit: When your credit card outstanding balance is high because of bad spending habits, taking up a personal loan to pay it off would not make any sense as you are already in the practice of overspending. This would mean accumulating credit card balance every other month. This means that you would be again stuck in credit card debt. A good option is to arrange a meeting with a financial planner to assist you in managing your finances efficiently and adequately.
  • Longer-Term: Personal loans let you choose your repayment term, and in cases where the person chooses a longer-term, it slows down the pay off process resulting in payment of more amount as total interest. This makes no difference even if the interest charged is less. So take a look at the total cost of the personal loan before you take the plunge.

Credit Consolidation

Sometimes, because of credit consolidation, you could end up in more amount of debt if you do not pay proper attention.

Although the personal loans in UAE may have a higher rate of interest when compared to secured loans, yet they are a preferred choice when you plan to pay back the credit card debt because they offer an attractive lower interest rate than the credit cards. But remember that you only qualify for availing a personal loan when you have an excellent credit score.

It is essential to consider the fact that if this accumulation of credit card debt is due to overspending than instead of opting for a personal loan, it is time to go to the root cause of it and find a permanent solution. Do not ever make personal loans a reason to go more deeply into the well of debt!! Study the pros and cons carefully then only decide to take up a personal loan to clear off your accumulated credit card outstanding.

Meet the author
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I'm a finance writer and solo-business blogger who loves to write about fin-tech tools and how to save money and keep a budget. With a passion for investing in equity and mutual funds. An alumnus of Magadh university, I am presently continuing my studies in Financial Management.

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