Unsecured personal loan installments may curb overspending cycle

An unsecured personal loan installments will help end the vicious cycle of overspending

By: Hitesh Khan/

While it is always best for consumers to pay off their entire credit card balance each month in order to avoid interest charges and penalties, that is not always possible. This is where unsecured personal loan installments may come in handy. Sometimes more pressing expenses, such as rent, utility bills and transportation costs, come first.

In the long run, tackling credit card debt will save consumers money. Although consumers should be open to a variety of strategies for eliminating credit card debt, some experts recommend unsecured personal loans as a way to wipe out credit card balances.

Unsecured personal loans enable the consumer to replace their minimum and variable credit card payments with fixed loan installments. In fact, credit cards have in some ways taken the place of what consumers used to take out a personal loan for.

With revolving credit card balances, falling into a vicious cycle of debt is all too common. When only the minimum amount is paid off each month, credit card debt is allowed to grow. If the consumer can’t make these minimum payments, they can expect to get hit with penalty fees that will add to their debt further. Additionally, the credit card issuer will punish payment delinquency by hiking the card’s annual percentage rate (APR). From that point, debt expands.

Unsecured personal loans can be taken out at several financial institutions, not just banks. Experts who recommend getting unsecured personal loans to combat credit card balances trumpet their ease of approval, which can take as little as 10 minutes at some lenders, such as licensed money lenders. Approval may depend on if the consumer has reliably paid secured and unsecured debt in the past, in addition to their debt-to-income ratio, their amount of unsecured debt, and if they earn a steady income.

Depending on the consumer’s credit history, collateral may be needed. Once approved for an unsecured personal loan, the consumer can take care of their credit card balance in full.

Unsecured personal loan installments have a number of advantages over regular credit card payments.

To start with, the interest rate on unsecured personal loans is substantially lower than the APR on unpaid credit card balances, particularly if the credit card’s into rate has expired. While credit card interest rates often range from 22 per cent to as high as 25 per cent, the interest rates on unsecured loans fall between 4 per cent and 18 per cent. The best low interest credit cards offer lower APRs than standard credit cards, however.

Also, while credit cards carry minimum payments that are variable and include little principal, an unsecured personal loan’s monthly payments can carry fixed rates, keeping them constant throughout the entire life of the loan. And, since the monthly payments on an unsecured personal loan also include interest and principal, the consumer will be continuously trimming their debt by repaying the loan.

If, after paying off their credit card balances, a consumer keeps from overspending on their credit cards, their unsecured personal loan installments will also help end the vicious cycle and begin a positive move toward overcoming credit card debt.

If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyse how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards.

Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. If you do feel that the credit card debt you have might be a problem, here are a few tips for improving the situation:

• Determine how much debt you have, and put together a plan for repaying it. If you’re currently paying the minimum amount required on your credit cards, stop doing so, and pay the maximum you’re able to. If you pay the minimum, it will take you 20-40 years to pay off the balance, meaning you’ll pay more than five times the actual debt in interest.
• If you have multiple cards, pay off the ones with the highest interest rates first.
• Consider switching to a card that offers a lower interest rate.
• Consider a personal loan to combine your debts as unsecured personal loan installments will help end the vicious cycle.

How to Secure a Personal Loan Quickly

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