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Should you consider a loan to pay off your cards?

Balancing different types of debt can be difficult. Between credit card debt, mortgages, car loans and personal loans, we sometimes find ourselves robbing Peter to pay Paul, as the old adage goes. Is it a smart idea to attempt to avoid personal bankruptcy by taking out a loan to pay off credit card debt? Experts weigh in on this controversial practice.

First, it is important to remember that taking out a loan does not reduce the amount of debt you have overall. Simply paying off your credit cards with a loan only restructures your debt; it does not eliminate what you owe. The only reason you should refinance in this way is if you can achieve one of the following: lower interest rates on the personal loan, lower monthly payments or a longer term for the loan. Credit card debt is different from a loan because it does not have a specific term. As long as you pay the minimum payments on time, the revolving credit will last indefinitely. Loan payments, however, must be made over a defined period.

The lower the interest rate on your total debt, the less you will pay in the long run for the privilege of borrowing the money. Personal loans fall into the same debt category as credit cards; both are considered unsecured debts. It is possible that you can acquire a loan with a lower interest rate than the national credit card average. If you can do so, pursue the personal loan option. With a good credit history, you might be able to get a great deal on a personal loan that will help you eliminate credit card debt.

Ultimately, it pays to be cautious when considering paying off your Washington, D.C., credit card debt. Be sure that you understand the terms of any personal loan before you commit to that option. You, too, can avoid bankruptcy through shrewd financial planning and strategizing.

Source: www.foxbusiness.com, "Use personal loan to cut credit card debt?" Don Taylor, Sep. 09, 2013

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