Be careful about using personal loans to pay off credit card debt

This article looks at why taking out a personal loan to pay off credit card debt may be dangerous.

Bankruptcy is a word that scares a lot of Americans and many people will do everything possible to avoid bankruptcy - including getting mired in even more unsustainable levels of debt. As CBS News reports, one popular tactic that often backfires is taking out a personal loan in order to pay off high credit card debt levels. While it is true that in some cases a personal loan can help consolidate debts into more manageable monthly payments, in other cases it can quickly lead to an even bigger debt problem. Below is a look at why using a personal loan to pay off credit card debt is risky and how bankruptcy may be a more effective solution.

The idea...

Using a personal loan to pay off credit card debt sounds like a sensible plan on the surface. After all, a person who is struggling to pay off a number of high-interest credit cards can substantially lower monthly payments by consolidating those debts with a low-interest personal loan.

Indeed, as the Dickinson Press reports, for people who still have a good credit rating and can get approved for a low-interest personal loan, then using that loan to consolidate credit card debts makes a lot of sense. Consolidating debts in such a way may not only reduces payment amounts, but can help people get out of debt faster.

The reality...

The problem, however, is that many people who are struggling with credit card debt will not qualify for personal loans that have low interest rates. In fact, by time most people are considering consolidating their credit card debt with a personal loan then their financial situation has already gotten out of hand. Instead, a personal loan can just end up making an already bad situation even worse.

Furthermore, the last thing an individual needs who does not have his or her debt under control is another loan. For example, what often ends up happening when somebody pays off credit card debt with a personal loan is that eventually they again start charging more items to their paid-off credit cards. What that means is that that individual has essentially doubled his or her debt, with both the personal loan and the credit cards all maxed out.

Bankruptcy law

While bankruptcy is never an easy decision, it can prove beneficial for those who are drowning in credit card and other types of debt. Bankruptcy puts an end to creditor phone calls and gives people breathing room to get back on their feet. For those who are mired in debt, a bankruptcy attorney can explain if and how bankruptcy may be able to help them get relief and settle and restructure their debts so that they can ultimately live debt-free.