How to Pay Off Credit Card Debt with a Personal Loan?

Credit cards are a good source to make expenditures related to shopping, utility purchases, and other requirements, as you can simply make the purchase and pay off credit card bills later. Thus, instead of pondering about the bills currently, you can pay for your expenses and clear the dues later. 

However, the last point has to be dealt with carefully. If you don’t pay the bills on time, the credit card issuer will charge a late payment fine with additional interest. To overcome this situation and pay off credit debt at once, a personal loan can come in handy. Personal loans are considered one of the best options to pay off a highly-charging credit card bill.  

In this article, we will discuss how you can use personal loans to clear your credit card outstanding debt through a method called debt consolidation. Some other points up for discussion would be how debt consolidation can help to tackle your credit card bill payments that are overdue, its benefits and drawbacks, and more.

How to Pay Off Credit Card Bills with Debt Consolidation Method?

The credit card debt consolidation method is a strategy that combines multiple credit card bills under a loan. You can clear all the credit card bills in one go and repay the loan in easy monthly installments in one place. 

Personal loans make the debt consolidation method easy and less expensive to pay off your credit card bills. If you have a good aecb credit score, you can qualify for a personal loan with a low-interest rate and save big chunks of money in the long run and pay off your credit card debt faster.

Consolidating your credit card debt is a good choice if the interest on your selected personal loan is lower than the interest charged on your credit card. In this case, your current monthly installments are made manageable as the effective interest rate is reduced - this can reduce the burden of the installments and pay off credit card debts in a short period. 

Additionally, multiple financial institutions offer personal loans in the UAE to pay off your credit card bills. All you need to do is look for lenders, compare the interest rates, and check the eligibility criteria to get the best personal loan in UAE to clear your credit card bills. 

Benefits of Taking out a Personal Loan to Pay off Credit Card Debt

Let’s take a closer look at the benefits of taking out a personal loan to pay off credit card dues - 

• Low Interest Rate - One of the central benefits of taking out a personal loan to pay off credit card bills is that they usually have lower interest rates than credit cards. If an applicant has a good credit score, they can avail of a personal loan in the UAE with affordable EMIs and low interest rates. This can help you pay off your debts faster and with less interest. With personal loans in the UAE, you can use the easy repayment tenure and foreclosure terms, coupled with a simple application procedure, to settle outstanding credit card bills without hassle.
• Boost in the Credit Score - A personal loan in the UAE can impact your credit score in a number of ways. Firstly, it enhances your credit mix, which can constitute up to 10% of your AECB score. Credit mix shows that you are a responsible borrower who can manage different types of credit. Another benefit of a personal loan to pay off credit card debt is that it also lowers your credit utilisation ratio, which indicates how much credit you are using against how much credit is available. In both scenarios, the AECB score credit improves, provided you repay the loan in due time. 
• Pay off Debt In Single Instalment- Another advantage of taking a personal loan in the UAE is the facility of settling your credit card debts in a single go. This can help you avoid additional penalties on your credit card bills by paying them off right away.
• Multiple Loan Tenure Options - Personal loans offer flexibility in selecting the loan repayment tenure. They provide repayment periods ranging from 6 to 48 months. Thus, you can select a tenure and repay the loan at your convenience. By opting for a repayment tenure, you can get lower monthly installments to pay off credit card debt with minimal stress, although the total interest amount can be on the higher side here. 
• Settle Debt Sooner - Depending on how much you owe, it may take a few months or even years to clear off your credit card debt with minimal repayments. With a personal loan, however, you can settle the credit card dues quickly and formulate a payment plan to repay your loan. Various banks and lending institutions in the UAE have different terms. By picking the most suitable personal loan that aligns with your requirements, you can pay off the debt quicker with your chosen EMIs. However, make sure that you don't restart your debt cycle by rebuilding debt.
• One Source of Debt - It is not advisable to owe money from various lenders, as monitoring and managing them can prove highly challenging. One of the major benefits of paying off credit card debt with a personal loan is that individuals can bring multiple debts under one loan, reducing the number of lenders. This further ensures transparency and clarity in the process of borrowing and repayment.

Drawbacks of Taking out a Personal Loan to Pay off Credit Card Debt

Despite all the mentioned benefits, taking out a personal loan to pay outstanding credit card dues can be risky. Listed below are a few cons to consider before opting for a personal loan to settle credit card dues - 

• Additional Upfront Cost - Numerous fees are associated with the personal loan such as application fees, processing fees, origination fees, prepayment penalties, late payment fees, and so on. So while the interest rate on a credit card can be higher than the personal loan interest rate, the personal loan fees can often negate this difference quickly. For this reason, checking a personal loan's fees and charges schedule is vital before opting for one. 
• A Lower Interest Rate is Not Always Guaranteed - While there may be a significant disparity between the interest rates for personal loans and credit cards, there is no guarantee that you will get a better interest rate. Interest rates are highly dependent on your AECB score, principal amount, and tenure of the loan. Consequently, it is better to find the interest rate you would be liable to pay on your credit card and find out whether you are getting a better interest rate on your personal loan to make a well-informed decision.
• Increases your Debt - A personal loan means racking up more debt by borrowing money. If you obtain a personal loan to pay off credit card bills and start to carry more balance on those credit cards again, the debt will increase. It is advisable to plan first to pay back your personal loan and create a budget to avoid overspending.

How to Choose the Best Personal Loan to Pay off Credit Card Debt?

Multiple financial institutions in the UAE offer various repayment terms and levy different interest rates. However, there is no set rule to follow to find the best personal loan - the best thing you can do is compare the loan terms and eligibility criteria to find an appropriate one. 

Some of the crucial things to consider while opting for a personal loan in the UAE are mentioned below - 

1. Interest Rates

With securing a lower interest than that on your credit card being the primary motive here, you should closely examine the interest rate on your personal loan to pay off credit card debt. The lower the interest rate, the better it would be. 

Keep in mind that interest rates are not universal. They depend on various factors, with your credit score being one such example. As a general rule, the higher your AECB score, the lower your interest rate will be, and vice-versa.

2. Repayment Terms

Repayment terms primarily depend on the lender. Generally, the repayment term ranges from 6 months to 4 years for personal loans in the UAE. If you wish to pay off the debt sooner, consider a lender that offers shorter repayment tenure. On the contrary, if you're going to keep your monthly installments low, consider opting for a lender that provides longer repayment terms.

Note: While a longer repayment tenure can bring down the instalment amount, the total interest on the loan also tends to go on the higher side here.

3. Loan Fees

As mentioned earlier, the various fees associated with personal loans in the UAE are essential when comparing loans. It is recommended to evaluate each lender's fee and assess which ones you are comfortable with in case you are required to pay them. 

4. Loan Amount

Loan amount means the amount of money that you borrow from the lending institution. Each lender has different minimum and maximum limits for loan amounts. In determining the maximum loan amount, the financial institution takes into account the debt-to-income ratio, credit history, financial profile, AECB score, and so on. 

As the primary aim is to pay off credit card debt in one go, it is advisable to go with a plan that offers a loan amount greater than or equal to the total debt amount.

How to Apply for a Personal Loan via Policybazaar UAE?

Selecting a personal loan to pay off credit card debt, while considering the fees, tenure, and loan amount, as well as the sheer number of available plans, can be a cumbersome process. As an applicant, you can easily send your personal loan application via policybazaar.ae to avoid all such difficulties and get the most seamless experience. 

You can access the best personal loan options in a single palace and compare them without switching between different sites. Moreover, you can apply for a loan with minimal documentation and without any hassle.

The process of applying for a personal loan in the UAE with us is fairly straightforward. You can visit the official website of Policybazaar UAE, navigate to the 'personal loans in UAE' section, and fill out your details in the lead form. This will move you to our personal loan quotes page, where you can compare the different options and apply for the one as per your requirements.

Ways to Get Off Credit Card Debt

You can also pay off your credit card debt by making extra payments on your credit card. There are two ways to tackle credit card debt - Debt Snowball Method and Debt Avalanche Method. These credit card debt repayment strategies are followed by a large number of borrowers and financial experts to get rid of their debt. 

1- Debt Snowball Method

In the debt snowball method, the borrower would design a plan to completely pay off the smallest debt first while making minimum payments on all other debts. To use the method, follow the given steps:

• List the debts in ascending order as per their amount. Here, the debt with the smallest amount of repayment payable would be at the first and the biggest one at the end.
• Determine how much money you can spend towards repayment of the loan
• Evaluate the total monthly amount payable towards the smallest debt
• Use the amount to pay off the smallest debt and move on to the next smallest debt until all the debts are cleared

Borrowers can use a debt snowball calculator to assess the total number of months it will take to pay off all their credit card bills.

2- Debt Avalanche Method

The debt avalanche method is suitable for borrowers who want to get rid of the most expensive debt first. In this method, the borrower first pays off the higher interest-rate debt. 

Follow these steps to use this method to pay off credit card debt - 

• List all your debts in descending order as per their annual percentage rate
• Unlike the debt snowball method, the disposable income of the borrower goes into paying off the debt with the highest interest rate 
• Start repaying the loan with the highest annual percentage rate while fulfilling the minimum instalment requirements for other debts
• Move on to the next loan with the highest interest rate and continue doing so until all the debts are cleared

Card Refinancing - Personal Loan Alternative to Pay Off Your Credit Card Debt 

As an alternative to a personal loan to pay off credit card dues, you can opt for the facility of balance transfer on your credit card. Balance transfer facilities can help you consolidate what you owe by streamlining monthly credit card bills into one payment. 

Simply put, this option moves all or part of the debt from one or more credit cards to another credit card. One of the notable benefits of a balance transfer facility is that it has a lower interest rate than other credit cards.

Some of the benefits of card refinancing are mentioned below - 

• The balance transfer facility helps pay down your debt faster by lowering the total amount you pay toward interest
• Card financing can help you simplify your finances. Apart from the lower interest rate, it allows the consolidation of the balances of multiple credit cards into one card.
• This strategy allows individuals to pay off their debts faster with convenient repayment terms

To Conclude

While personal loans are commonly used to finance your personal requirements, one of the best uses of this financial product is to pay off your credit card debt. A personal loan to pay off credit card debt can offer various benefits like lower interest rates, the convenience of only one source of instalments, clearance of all the debts in one go, and more. 

At the same time, it is crucial to remember that these benefits depend significantly on the profile of the borrower in terms of their credit score and more. Moreover, if the loan fees are high, the primary motive of repaying the debts at lower rates can be nullified to a considerable extent. 

Thus, before applying for a loan, you should check the various options available in the UAE market to make a well-informed decision. For this, you can visit policybazaar.ae and compare the best personal loans in the UAE.