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How to clear credit card debt with a personal loan?

How to clear credit card debt with a personal loan?
Credit cards are extremely popular because they offer you quick money and the freedom to spend without having to pay back immediately. While some consumers use this judiciously, there are many others who rack up a huge pile of debt on account of credit card spending. This is mainly because banks charge a hefty interest rate on your unpaid amount and the interest amount quickly spins out of control. 

The best solution in such a circumstance is to apply for a personal loan so that you can pay off your credit card debt. In this article, we’ll talk about how to clear credit card dues through a personal loan.
 

Understanding Credit Card Debt

Credit card debt is the amount of money you owe to credit card companies. Credit cards often come with high interest rates, making it easy for debt to accumulate quickly. Minimum payments are designed to keep you in debt longer, as they cover mostly interest and only a small portion of the principal balance.

Impact on Financial Health

Accumulating interest can significantly increase the amount you owe over time, making it harder to pay off the debt. High credit card balances can also negatively affect your credit score by increasing your credit utilization ratio, which is the amount of credit you’re using compared to your total credit limit.

Benefits of Clearing Credit Card Debt with a Personal Loan


There are several benefits to a credit card takeover loan.
 

  1. Lower Interest Rate

    The rate of interest on credit cards is quite high. The rate of credit card interest is calculated on a monthly basis. In India, the rate of interest on credit card debt can range from 3% to 4% per month. This works out to around 40% to 50% per annum. It’s clear that credit card interest rates are exorbitant and can get out of control very fast.
     
    For example, if you have credit card debt of Rs. 100 and you don’t pay it for one year, then you’ll have to pay around Rs. 140 to Rs. 150 at the end of the year. Hence, paying off credit card debt is difficult. 

    In contrast, personal loan interest rates are much lower. The interest rate is calculated on a yearly basis and ranges from 10% to 25%. Hence, it's much better to pay off a personal loan than a credit card. 
     

  2. No collateral needed

    Similar to credit card debt, personal loans are usually unsecured. This means that you do not have to provide any collateral when you take out a personal loan. This also makes the whole loan-taking process faster.
     

  3. Longer repayment schedule

    A personal loan will have a much longer repayment tenure than a credit card debt. Your credit card debt needs to be paid off within a month. However, a personal loan can be paid off in monthly installments, which can range anywhere between six months to five years. It’s obvious that a longer repayment schedule will make it easier for you to repay the loan.
     

  4. Easy application process

    The application process for loans these days has become much easier. Almost every kind of loan is available online, including personal loans. As mentioned in the beginning of this article, all you need to do is fill up the loan application form and provide the documents.

    A personal loan can get approved and disbursed within the space of a few days. Some lenders even offer same day disbursal. This means that there is very little headache and stress involved in replacing your credit card debt with a personal loan.
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Also Read- Can A Personal Loan Help You Improve Your Credit Score


How to Use Personal Loan to Pay Off Credit Card Debt? 

  • Firstly, apply for a personal loan. Compare different loan rates and go for the one with the most affordable interest rates.  
  • As soon as you get the money credited to your bank account, make sur you pay off your debt first. Do not think of using it anywhere else.
  • Make sure you then pay off your installments on time and as quickly as possible.
  • Try to use credit card money to only purchase things you can afford to pay off.

Steps To Apply Personal Loan For Credit Card Takeover Loan 

It is quite easy to apply for a personal loan. You can avail of a personal loan through the mobile app of your bank. Since your bank already has all your information, this process can be completed in ten minutes.

You may also apply for a pre-approved personal loan. A pre-approved loan means that you’re already eligible for the loan and the loan amount will be disbursed to you as soon as you apply for it.

If you want to take out a personal loan from a different bank, then you can apply for one online through their website. You will need to fill out the loan application form and provide all the documents.

Step 1. Visit Hero FinCorp official website or download the Hero FinCorp loan app.

Step 2. Select the 'Apply Now' option.

Step 3. Input your mobile number and confirm the OTP sent to the provided mobile number.

Step 4. Indicate the desired loan amount.

Step 5. Validate your KYC details to assess income eligibility.

Step 6. Press 'Submit' to finalize your application.

Usually, the bank will ask for the following documents:
 
  • PAN Card
  • Identity Proof (Aadhar Card, Driving License, Voter ID, Passport, etc.)
  • Proof of Signature (PAN card or Passport).
  • Address Proof (Rent Agreement, Title Deed, Utility Bill, Passport, Aadhar, and so on.)
  • Bank Statements for the past six months.

Documents Requirements for Personal Loan

The need for a credit card takeover loan can arise at times, so the required documents are minimal and paperless. This streamlines the process, avoiding lengthy documentation. Keep your KYC details and income documents ready for a quick online application. Below is the document list:

  1. Aadhaar Card Number linked to your mobile number for one-time password verification or Smart Card Driving License.
  2. PAN Card Number
  3. Address Proof: Aadhaar or Smart Card Driving License (anyone).
  4. Photo ID Proof: Name, age, gender, photo.
  5. Income Proof: 6 months’ bank statement.

Somethings to keep in mind

 
  1. Keep in mind that a personal loan is also another debt form, so make sure you pay your installments on time.
     
  2. Make sure that you change your habit of using credit card while paying off your personal loan installments. If you don’t, you could end up being in a worse situation than where you started.

Also Read: Benefits of Paying EMI Regularly and How You Can Do It

Conclusion

Credit card debt can be crippling if left unpaid for too long. You should be highly vigilant and pay your credit card bill within the due date. If due to unavoidable circumstances you cannot pay off the loan, then it is best to replace the credit card debt with a personal loan.

In conclusion, a credit card takeover loan can be an effective solution for managing and eliminating high-interest credit card debt. By consolidating your debt into a single loan with potentially lower interest rates and fixed monthly payments, you can simplify your financial life and work towards becoming debt-free. However, it's important to carefully consider your financial situation, compare loan offers, and consult with financial advisors to ensure this option is the right fit for you. Remember, maintaining financial discipline and avoiding the accumulation of new debt is crucial to achieving long-term financial health.
 

Frequently Asked Questions

What is a Credit Card Takeover Loan?

A Credit Card Takeover Loan is a type of personal loan specifically designed to pay off existing credit card debt. It consolidates multiple credit card balances into a single loan with a fixed interest rate and repayment schedule, often resulting in lower monthly payments and interest rates.
 

How does a Credit Card Takeover Loan affect my credit score?

Applying for a Credit Card Takeover Loan involves a hard inquiry on your credit report, which may temporarily lower your credit score. However, if you use the loan to pay off credit card debt, it can improve your credit utilization ratio and potentially boost your credit score in the long term.
 

What documents are required to apply for a Credit Card Takeover Loan?

The application process for a Credit Card Takeover Loan is typically minimal and paperless. You will need to provide KYC (Know Your Customer) details, such as proof of identity and address, as well as income documents like pay stubs or tax returns.
 

Can I use a Credit Card Takeover Loan to pay off multiple credit cards?

Yes, a Credit Card Takeover Loan can be used to consolidate and pay off balances on multiple credit cards. This allows you to combine your debts into a single loan with one monthly payment, making it easier to manage and pay off your debt.
 


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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