Many credit card users make the mistake of thinking of their credit cards as an extension of their income, which leads to them overspending on things they cannot afford. As they continue to fall behind on their bill repayments, the late payment penalty and higher interest rate—which can reach as high as 49%—cause their outstanding debt to increase dangerously.
Applying for a personal loan from a bank or another lending company, like fintech or NBFC, is one of the most popular ways to escape a never-ending cycle of amex platinum credit card debt.
Let’s look at how a personal loan can assist you in ending the never-ending american express reward card debt cycle.
There is a restricted range of interest rates. Interest rates on credit cards and personal loans differ significantly from one another. While the interest rate on personal loans normally ranges from 10.99 percent to 24 percent, the interest rate on american express reward card debt can occasionally reach 47 percent. With the money you save from lower interest rates, you might decide to pay off your debts sooner.
Managing PL repayment is simpler: Additionally, credit cards enable the conversion of outstanding balances into installment payments; therefore, individuals who have debt on several cards will need to set up multiple installment payment plans with deadlines. Instead, by taking out a personal loan to pay off various amex platinum credit card debts, you can consolidate your debt into a single loan with a single interest rate, EMI, payment date, and loan duration. You have a choice of one to five years for the Personal loan tenure, depending on your ability to repay the loan. After submitting your application, you can check the status of your bank loan to stay informed.
Things to think about before applying for a personal loan to pay off american express reward card debt
The credit report’s credit score is: Due to the unsecured nature of personal loans, lenders have the right to reject applications from borrowers with poor credit records or to increase interest rates. Due to the possibility of late payments, credit cardholders with a history of debt accumulation are less likely to qualify for a personal loan at a favourable interest rate. Not only does this lessen their chances of ever receiving a loan in the first place.
Furthermore, it’s possible that making numerous direct loan inquiries to different lenders would be ineffective and lower your credit score because lenders report these kinds of inquiries to credit agencies. Both your credit score and your loan eligibility will suffer as a result of this.
It is preferable to research online lending portals than to apply directly to lenders in order to find the best personal loan offers without having your credit score lowered. You can use websites to check the status of your loan and find out whether it has been approved or denied, just as you can monitor your credit score by viewing your credit report.
Tenure of Loan: The personal loan is obviously not unlimited and has a set term no matter if your purpose is american express reward card debt payment or something else . Therefore, a major factor in deciding your EMI and total interest cost is tenure, or the length of time your personal loan will be in force. While shorter-term loans have larger monthly payments but lower interest rates, longer-term loans have higher interest rates but smaller monthly payments.
It is advisable to choose a loan term that aligns with your expected future cash flows as well as your ability to repay the loan. Without a strong repayment plan, penalties for late payments and other infractions will make debt accumulation worse and increase borrowing costs.
Interest rates on non-traditional loan arrangements: Since the primary motivation for taking out a personal loan to pay off amex platinum credit card debt is to reduce interest costs, it’s important to compare the interest rates of non-traditional loan options such as securities loans, gold loans, top-up home loans, and loans secured by real estate. Because most of these alternative lending options are secured in some way, their interest rates are typically lower than those of a personal loan. Some lenders’ longer loan terms could also mean a lighter monthly payment load. Additionally, remember to use the loan status check feature for any loan you choose to apply for. It’s best to keep an eye on your application’s progress at all times.
Use online financial portals to compare the interest rates of alternative loan options provided by multiple lenders in order to prevent any negative impact on your credit scores.
Fees associated with early payments: You can lower your interest costs regardless of how much or how little you pay off your personal loan. However, by deducting prepayment and foreclosure costs from the remaining principal amount, which can range from 2 to 5 percent, most lenders penalise borrowers who pay off their personal loans early or who go through foreclosure.
Here’s what you ought to do: If you want to pay off your personal loan early, look for one without an early repayment penalty.
Also, interest rates on debt and fixed-income investment options are typically lower than those on personal loans. Examples of these products include debt funds, company deposits, non-convertible bonds, and fixed-income securities (FDs). Nevertheless, most personal loans have interest rates that are less than those of stock investments.
Final thoughts
Consider redeeming fixed income or debt investments that are unrelated to your short-term financial objectives in order to pay off amex platinum credit card debt. You must refrain from using your equity investments to finance unavoidable financial objectives since doing so may require you to take out expensive loans in the future. In addition, you should avoid using your emergency savings because unforeseen circumstances may require you to take out more expensive loans in order to pay for your needs. Remember to follow up on your loan application even after you’ve submitted it.
