Credit cards are convenient, but they can quickly become a debt trap when balances pile up. With interest rates often ranging from 30% to 42% annually, even a small outstanding amount can snowball into a huge financial burden if not managed properly.
One common solution people consider is taking a personal loan to repay their credit card dues — but is it a wise financial move? Let’s explore.
1. Why Credit Card Debt Can Become a Problem
Credit cards charge some of the highest interest rates in consumer finance. Missing payments or paying just the minimum amount keeps you in a cycle of compounding debt.
For example:
If you owe ₹1 lakh on your card at 36% annual interest, it could double in less than three years if you only pay the minimum due.
That’s why finding a lower-cost alternative to pay off card debt — like a personal loan — often makes sense.
2. How a Personal Loan Can Help
A personal loan for debt consolidation allows you to repay all your credit card balances at once and replace them with a single fixed EMI at a lower rate (typically 10%–18% p.a.).
Benefits include:
✅ Lower interest cost → Reduces your total outflow.
✅ Simplified repayment → One EMI instead of multiple cards.
✅ Improved credit score → Reduces your credit utilization ratio.
✅ Predictable repayment timeline → Fixed tenure brings financial discipline.
3. When It Makes Sense
Taking a personal loan to clear credit card dues is financially smart if:
You’re paying over 25% interest on your card.
You can qualify for a personal loan under 15–18% interest.
You want to close your credit card debt permanently and avoid rolling balances.
You can afford consistent EMIs without missing payments.
4. When It’s a Risky Move
It may not be the right choice if:
You continue using your credit cards after clearing them (risk of double debt).
You don’t have a steady income to repay the new loan.
Your loan comes with high processing fees or prepayment penalties that offset savings.
Remember: a personal loan solves the symptom, not the habit — unless you fix your spending behavior.
5. Tips Before You Apply
✔ Compare lenders — Use loan aggregators to find the lowest interest rate.
✔ Check processing charges — Usually between 1%–3% of the loan amount.
✔ Look for balance transfer options — Some banks offer short-term 0% interest balance transfers for card dues.
✔ Close unused cards — Reduce temptation and simplify financial management.
✔ Create an emergency fund — Avoid using credit cards again for short-term needs.
6. Final Verdict: Smart Move, If Managed Right
Taking a personal loan to clear credit card debt can be a financial reset — a chance to close high-interest balances and regain control.
However, it only works if you follow through with discipline and budgeting, ensuring you don’t fall back into the same cycle.
Use this strategy to consolidate debt, not to expand it.
FAQs: Personal Loan vs. Credit Card Debt
1. Will taking a personal loan hurt my credit score?
Initially, your score might dip slightly due to a new credit inquiry, but paying off high-interest card debt can boost your score in the long run.
2. Is it better to use a balance transfer card instead?
Balance transfers work for short-term relief (3–6 months). For larger, long-term debts, a personal loan is more practical.
3. How much loan should I take?
Only as much as needed to clear all existing card dues, not more.
4. Can I still use my cards after clearing them?
You can, but it’s better to pause or limit usage until you’re financially stable.
5. What’s the ideal tenure for such a loan?
Usually 12–36 months, depending on your repayment capacity.
Published on : 8th October
Published by : SMITA
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