Online Personal Loan Versus 0% APR: Which Is Best To Pay Off Credit Card Debt

It can be nerve-racking and stressful to have tremendous amounts of credit card debt. You might have sufficient earnings or salary every month to repay your utilities, mortgage, and other necessities, yet hardly enough money left to repay credit card debts.

Well, you are not alone. According to Statista, in the first quarter of 2020, credit card debt in America reached 890 billion dollars. There are two most generally known strategies to eliminate credit card debt, which are 0% APR credit card and personal loans.

However, which method is actually the best for paying off credit card debt? Which is best for your needs?

Using Personal Loans

Repaying credit card debt via a personal loan has its own set of pros and cons. Some lenders have implemented and employed stringent requirements on who won’t and who will qualify for the loan, especially during the pandemic.

Other lenders have initiated and launched small-dollar loans at incredibly low rates if you have been significantly affected by the pandemic financially. However, if you do not have a strong financial history and stellar credit score, it might be more difficult to qualify.

Indeed, you can leverage a personal loan to make paying off your debts much more manageable. What’s more, you can get a personal loan online easily—for example, taking a personal loan to pay off debt with Match financial.

Advantages

The following are some of the common benefits of using a personal loan to pay off debt:

• Using a personal loan to pay off your credit card debt can, for the most part, help minimize your utilization rate and potentially boost your credit score if you make timely payments. Your utilization rate refers to the available credit you are using at any time.
• The most significant benefit of using a personal loan is that it is an unsecured loan. Meaning, there’s no collateral or security needed to underwrite the loan. However, take note that some personal loans are secured. That said, if you fail to pay or miss a payment, you risk losing your collateral.
• For personal loans, the annual percentage rates range from 6 percent to 36 percent. Remember that the rates can shoot up even if you’re offered an initial rate when you guarantee the loan.
• A personal loan has a fixed repayment term that can range from 1-5 years. Therefore, it is much easier to plan and budget your repayment date in advance.

Drawbacks

The following are some of the common disadvantages of using a personal loan to pay off debt:

• Some lenders charge origination or processing fees to get a personal loan. These fees can accumulate, thus, raising the amount you will owe on loan. Additionally, some lenders impose prepayment fees for repaying your loan early.
• The average annual percentage rates on personal loans range from 6-36 percent. Your APR will be less if you have good credit. However, if you failed to make some payments on time, you might be charged with a higher interest rate.
• Secured personal loans will require you to put up collateral. If you default on the loan, your collateral might be seized by the lender.

Using 0% APR Cards

Balance transfer or 0% APR credit cards is another good option for paying off debt. Often, it is better than a personal loan. However, not all the time. If, for instance, you have massive amounts of credit card debts and need a long time to repay your balances, a 0% APR card may not be a good option.

On the other hand, if you plan to repay the debt quickly, a 0% APR card may work out. Before the COVID-19 pandemic, banks were endorsing at least 200 million balance transfer cards each month, but according to a report by the Federal Reserve Bank of Philadelphia, that number has sunk since the pandemic started.

Advantages

The following are some of the common benefits of using a 0% APR balance transfer to pay off debt:

• You can earn perks and rewards with some 0% APR credit cards.
• A 0% APR credit card allows you to transfer debts from high-interest credit cards, thus, allowing you to consolidate balances into a single payment.
• This option is ideal for large purchases.

Drawbacks

The following are some of the common disadvantages of using a 0% APR balance transfer to pay off debt:

• If you miss payments or make late payments, you may end up forfeiting your 0% APR.
• If your credit score is less than good, you might not be able to qualify for a 0% APR card.
• When the promotional period ends and fails to repay the balance, you’ll incur interest.

Takeaway

If you want to get out of debt quickly, then using a personal loan is the best option. On the other hand, if you have a high amount of credit card debt or have stellar credit, think about signing up for a 0% APR balance transfer card.