Credit Card Debt and Personal Loans
It is often the case that someone with significant credit card debt might want to consider getting a personal loan to help with removing some of that credit card debt and while a debtor might believe his credit card debt was wiped out by using a personal loan to reduce the balances, it’s simply a case of a balance being shifted from credit cards to a loan. It’s possible that moving the money from credit cards to a personal loan might make for an easier payment each month but doing so would not necessarily reduce the amount of money paid over the life of the loan or the credit card payments.
Whatever an individual’s own net worth and ability to get new credit cards and loans, it might not be worth switching over the money unless it would result in a greatly reduced interest rate because applying for a new account or loan would likely negatively impact the debtor’s credit score, at least in the short term.
Another issue that might come up is the fact that a person might not be able to secure a fixed rate loan which would guarantee that the interest rate would never increase before it was paid off. While paying off the balance at a smaller interest rate could certainly save money in the long run, sometimes the only way to secure a lower interest rate is to agree to a variable rate loan. And because nobody can tell the future and nobody knows what the economy might do, it’s possible that the interest rate would increase.
