If your credit card balances continue to grow despite throwing just about all your extra income at them, you may wonder what you'll ever be able to do to get out from under this mountain of consumer debt. Often, even a relatively low balance can balloon to gargantuan proportions once double-digit interest rates begin to accrue, leaving you scrambling to regain ground. Should you take out a lower-interest personal loan to pay off this debt, or are there other more viable options? Read on for some situations in which a personal loan may be your best option for ridding yourself of this high-interest debt.
When Your Credit is Fair (or New)
Although the availability of 0 percent credit card offers and fee-free balance transfers dried up during the Great Recession, for consumers with good or excellent credit, these offers are once again commonplace, allowing you to transfer high-interest balances to a 0 percent credit card for only the cost of the transfer fee. Some banks and credit card issuers will even waive this transfer fee, allowing you to move a four- or even five-figure balance from a 19.99% interest credit card to a 0 percent interest credit card without paying a cent.
For those with poor or fair credit, or who haven't established much of a credit history yet, these 0 percent credit cards may not be a viable option, making a personal loan the lowest-interest alternative. Often, simply by taking out a personal loan and continuing to make timely payments, you'll be able to reduce your debt utilization ratio enough to raise your credit score and begin receiving 0 percent offers of your own.
When You Don't Own a Home
For homeowners who have some equity, a home equity loan or line of credit may be one way to pay down high credit card balances at a low interest rate. HELOC interest rates are largely based on mortgage interest rates, which are still relatively low; and while defaulting on an HELOC can put your home at risk, as long as you make your payments on time, any remaining balance at the end of the HELOC term will simply be rolled into your mortgage at its current interest rate.
However, for those who don't own a home, or who haven't yet built up enough equity to qualify for a home equity loan or HELOC, a personal loan may be the answer.
When Bankruptcy Isn't an Option
In some cases, your credit card balance may exceed your current (and projected future) income to the extent that bankruptcy is just about your only option. However, for those in less dire straits or who earn too much to qualify for bankruptcy relief, a personal or debt consolidation loan can be the perfect way to lower interest rates and allow you to pay off your principal balance more quickly.