How a personal loan can help you recover from holiday credit card debt

If you got a little carried away with your holiday credit card spending, a personal loan might help you refind your financial footing in the new year. You’ll receive all your funds in one lump sum and can use them to combine multiple debts into one persoonal loan at a fixed interest rate and payment and a definite payoff date.

When to use a personal loan to pay off credit card debt

If you don’t have enough savings to pay off high-interest rate credit cards you used over the holidays, a personal loan might be worth a look. Personal loan rates are lower than credit cards on average, and some lenders even offer repayment terms as short as four months.

The approval process is fairly simple, and typically only requires you provide your income, credit scores and current address. You can usually receive funds within a few days of approval, putting you on a fast track to freedom from your holiday credit card debt.

Most personal loans are unsecured, which means you don’t need a car, home or other asset for approval. It also means you won’t face a car repossession or home foreclosure if you can’t repay the loan.

A few drawbacks include potentially high fees and penalties if you pay the loan off early. The longest repayment period is usually seven years, which may make the monthly payment more affordable. However, the longer the term you choose, the more interest you’ll pay.

Pros and cons of using a personal loan for debt consolidation

Pros

• Lower rates than credit cards.
• Fast approval and funding.
• No collateral required.
• Fixed monthly payment.

Cons

• Monthly payment may be higher than credit cards.
• Penalties may apply if the balance is paid early.
• Origination fees may be higher than other loan types.

How to pay off credit card debt with a personal loan

The process for paying off credit card balances with a personal loan is fairly simple. First, add up your holiday credit card balances so you know how much to apply for.

Next, check your budget to determine how much of a monthly payment you can afford. A personal loan comes with a fixed monthly payment, so make sure you’re comfortable with the payment before you finalize any lender options. Use a loan calculator to see the payment options at different rates and terms before you apply anywhere.

Finally, start shopping around for the best personal loan rates and terms. You’ll typically find personal loans at your local credit union, bank or online. Request at least three quotes and compare the rates, costs and any unique features to decide which is best for you.

Which credit card should I pay off first?

One of the benefits of taking out a personal loan to pay off credit card debt is the flexibility to pay the balances off on your own schedule. While it’s always best to pay them all in full, if for some reason you can’t get approved for a personal loan amount high enough to pay all your cards off, consider these options.

Pay the highest interest rate balances first

This is similar to the debt avalanche method of paying credit cards off, except you use a lower rate personal loan instead of cash to knock down high interest rate credit card balances. With this strategy, you clear out your most expensive debt, and replace it with a lower rate personal loan with a fixed payment.

Check the due dates on deferred interest cards next

If you took advantage of a “no interest for x months” or “no interest if paid in full” promotion, check the fine print to keep track of your due date. If you’re worried you’ll be on the hook for the deferred interest because you forget to or can’t pay the balance in full by the promotional expiration date, consider using your personal loan balance to pay the account in full early.

Don’t forget about buy now, pay later loans

A recent Bankrate survey showed that 10 percent of holiday shoppers were planning to use buy now, pay later (BNPL) loans this season. If you’re worried about missing payments — and facing the high interest rates that follow — pay BNPL loans off with your personal loan.

When should I pay off my credit card?

It’s always best to pay off credit cards as soon as you can to avoid paying as much interest. Consider paying buy now, pay later or deferred interest cards off well before the promotional periods end to avoid paying costly retroactive interest charges if you miss the promotional due date.

What is the best way to pay off credit card debt from the holidays?

The best remedy for a holiday debt hangover is to pay it all off with cash. If your savings didn’t keep up with your spending, or you don’t qualify for a personal loan, here are some other options that may offer you some debt relief.

• Use Christmas cash gifts. Tally up the money you received in holiday gift cards and use that toward your credit card balances.
• Redeem credit card reward points. If your rewards credit cards offer a cash option, consider redeeming points and using the money to take a chunk out of your credit card debt balances.
• Check out balance transfer credit cards. See if you’re eligible for promotion 0% APR balance transfer cards. Watch out for transfer fees — they can be as high as 5 percent of the amount you transfer.

How to pay off credit card debt fast after the holidays

Pay balances off as soon as you receive your statements. The quicker you pay off credit card debt, the less interest you pay. If you earn any extra money from side hustles, holiday bonuses or get a raise, use the funds to pay extra on any remaining holiday debt. A little extra budgeting discipline will help you trim those credit card balances until they’re down to zero.