If you currently have good credit and are starting to have problems paying off your credit cards, you might want to consider getting a signature loan to consolidate these debts. A signature loan typically requires making monthly payments for a set period of time. If this sounds like a good idea to you, here are three things you should know.
Make sure you take a loan that is big enough to pay the debts off
To start, you should make a list of all your credit cards and their current balances. When you add this up, this will tell you how much money you will need to borrow to pay them all off, and you should aim for getting a loan that is equal to the total amount you owe. When you receive the proceeds of your signature loan, you should immediately pay off all your credit cards.
This will leave you with no balances on your credit cards and just one payment to make each month. The interest rate will probably be lower on this loan than the rates on your credit cards, and you will probably be able to pay this entire debt off in five years or less.
A signature loan requires good credit and helps build credit
Taking a signature loan can actually help you build your credit; however, you must apply for the signature loan while your credit is still good. If you are starting to get behind on your credit card payments, your credit score may drop in the near future. Once you get the signature loan, your credit may actually improve for two reasons:
- You will have zero balances on your credit cards, and this means your credit-utilization rate will be at 0%.
- Your payments to the signature loan will boost your payment history part of your credit score, and payment history is very important for your credit score.
This option is better than debt consolidation
A lot of people turn to debt consolidation plans when they need help paying off credit card debt, but a signature loan is the better option. Here are several reasons for this:
- Debt consolidation plans do not actually pay off your credit cards right away; it takes time for this to happen.
- There can be a lot of fees with debt consolidation, whereas the fees with signature loans are much lower.
- Debt consolidation may harm your credit, and this happens because payments to the credit cards are not always made on time.
If you want a good way to get out of debt, you should look into a signature loan. You can learn more about these loans and other options by talking to a lender like Las Vegas Finance.