Personal Loan For Credit Card Debt: A Reddit Perspective – Financial Planning | Credit Management | Personal Finance | “Should I Take a Personal Loan?: When You Think” by Simple Collection Team | July 13, 2022 | 8 minutes of reading
This article is brought to you by CIMB CashLite Personal Loans. Newcomers to the bank can avail financing from 3%* per annum (EIR 5.64% per annum) with zero charges.
Personal Loan For Credit Card Debt: A Reddit Perspective
What do you do when you are in a financial crisis and don’t have enough money? At school I borrowed lunch money from friends to spend my free time. As an adult, you can still borrow money from a friend, but unlike a mortgage or car loan, you can also get a personal loan.
Good Reasons To Consider Taking Out A Personal Loan
Personal loans offered by banks allow you to borrow n amount of money based on your monthly income, relationship with the bank and creditworthiness. Some might argue that you can do the same thing with a credit card, meaning you can pay for something with money you don’t have, but personal loans have lower interest rates, making repayments more affordable. Debt management is easy.
But just because personal loans are more available and easy to apply for doesn’t mean you should take out a personal loan just because you need to spend more than you have. Instead, good financial management requires taking a personal loan for a good reason. So what is “good enough” reason?
It’s unrealistic that some of us would let debt spiral out of control, especially if we weren’t taught good financial habits before taking on debt. Specifically, you’ve accumulated credit card debt and are now struggling to pay it off. A personal loan may be the answer to paying off your credit card debt before it snowballs.
Credit card debt can completely wipe out your household budget in the blink of an eye. In general, credit card interest rates can reach up to 30% per year. This means that even if you make the minimum monthly repayments, the interest charged on the balance may be more than the amount you repay.
Is A Credit Card Or Personal Loan Better?
On the other hand, personal loans come with an annual interest rate of 3% to 5%, which significantly reduces the burden on your wallet. Unlike credit cards, where you must repay at least a certain percentage of the card’s balance, the interest rate on a personal loan is fixed for the life of the loan. This means you won’t have to pay more than your scheduled repayment amount each month, making your monthly loan more predictable and allowing you to budget.
When applying for a personal loan, add up your credit card debt and choose a loan amount that covers the entire amount you can repay.
When comparing personal loans, be sure to choose a loan that offers an attractive effective interest rate (EIR). The interest rate given is only a nominal interest rate and does not take into account the actual cost of obtaining a loan. The effective interest rate (EIR) also takes into account management fees and commissions.
For example, if you take out a $25,000 personal loan with a 5% APR but charge an extra 1% in processing fees, the total interest you’ll pay is $1,500 instead of $1,250. In other words, the nominal interest rate is 5%, but the real EIR is 6%.
Is It Good To Pay Off Credit Card Debt With A Personal Loan?
The EIR amount is also affected by the repayment schedule (number of installments and frequency of installments).
To choose the right personal loan, you need to know what your needs and capabilities are. If you are struggling with cash flow, opting for a personal loan that requires high monthly payments and is short-term is not the best option.
Depending on your stage of life, you may have to buy expensive tickets. This includes paying for your upcoming wedding, essential repairs and BTO equipment, and even replacing your trusty laptop that you finally parted with after years of care and use.
If you haven’t saved up for this yet, but for some reason you want to make such a big purchase now, you might want to consider paying it off with a personal loan (instead of a credit card). As mentioned above, personal loans have lower interest rates, making them easier to use and manage than credit cards. Low interest rates are not the only advantage. Personal loans can actually help you plan your finances better because they have a loan term.
Should You Pay Off Personal Loans Or Credit Cards First?
Basically, the loan repayment period is the period during which you can repay the entire loan. Loan terms can be 12 months, 36 months or longer. Knowing your repayment period will help you create a monthly budget and financial plan so you can make your repayments as hassle-free as possible.
Remember that if your circumstances change and you are suddenly unable to repay the premium within the agreed period, you have the option to change this period. However, extending your loan term comes at a price and not all banks offer this flexibility, so make sure your finances can handle the additional loan.
If you are anticipating cash flow problems after making a big purchase, or if for some reason you just can’t spare the time, a personal loan can help you refocus your efforts on planning for big expenses. Once you determine the monthly repayment amount, everything will be clear at a glance. But of course, if possible, it’s always best to pay this amount from your hard-earned savings.
Another example where you can use a personal loan is if you have a financial emergency, such as when you cannot pay your medical bills.
Should I Pay Off My Credit Card Debt With A Personal Loan?
It’s always best to have an emergency fund and purchase insurance to reduce your down payment, but there are times when you’re unprepared for an emergency or need more money than you have. This can also be the case. .
So if your savings don’t provide enough liquidity to tide you over, a personal loan might be your best bet. But don’t make it a habit. Instead, you need to work on your financial habits, such as saving before you spend and building a strong emergency fund that will allow you to weather all kinds of storms without getting into a dangerous situation.
If you have big needs, personal loans are easily available and can be applied for from many banks in Singapore. However, before you take a personal loan, you should know the nominal interest rate (also known as the advertised interest rate), the effective interest rate (the actual cost of availing this personal loan; additional fees and charges), the loan amount, and the repayment period. (payment period) and repayment schedule.
It’s important to remember that just because personal loans are readily available doesn’t mean financial irresponsibility will suddenly be fixed. Healthy financial habits are still essential to making payments, managing debt and living a happy life. While personal loans can help you manage your financial needs by setting up a repayment schedule or extending your repayments for as long as you want, they are a tool designed for a specific purpose and are meant to provide a temporary and not just a sense of wealth.
Should I Use A Personal Loan To Pay Off Credit Card Debt?
If you are looking for a personal loan to pay for an emergency, to cover a large expense or to consolidate existing debts, consider applying for a CIMB CashLite personal loan.
CIMB CashLite Personal Loan offers fixed interest rates starting at 3% per annum*. (EIR 5.64% p.a.) For first time bank customers, no charges. This is one of the lowest bank charges published online as of June 1, 2022. You can earn up to $1,000* back on 3-5 year loans of $5,000 or more.
For the avoidance of doubt, the above information is provided solely on a non-reliable basis and does not constitute advice of any kind from The Simple Sum or CIMB Bank Berhad. You should assess your own financial situation and needs.
Life | Personal Finance | Podcast | September 17, 2020 S2E6: You Can’t Pay Anymore! ft. Jonathan Chua (GRVTY Media)
Things To Keep In Mind While Availing A Personal Loan To Pay Your Credit Card Bills
Personal Finance | Article | May 15, 2023 Why should you refinance or reprice your mortgage in a high interest rate environment?
Strengthen your personal finance strategy with our weekly newsletter. Get the latest financial updates, tips and advice on personal finance straight to your inbox. Personal loans serve a variety of purposes, such as taking a vacation, covering unexpected medical expenses, and paying off credit card debt. If done correctly, these strategic steps can help you avoid high interest credit card balances.
If you…
