Is a Personal Loan for Credit Card Debt the Right Choice?

Understanding the Credit Card Debt Trap

Have you checked your credit card statement recently and felt a knot in your stomach? You’re not alone. Many Indians fall into the credit card debt trap after festive shopping sprees or unexpected expenses. Credit cards charge interest rates up to 48% annually, making them one of the most expensive forms of borrowing.

According to RBI data, outstanding credit card debt in India crossed ₹2 lakh crore in 2023, with an average Indian cardholder carrying approximately ₹50,000 in revolving debt. This high-interest debt can quickly snowball if you make only minimum payments.

Why Consider a Personal Loan to Clear Credit Card Debt?

A personal loan for credit card debt works like a financial rescue strategy. It allows you to pay off high-interest credit card balances and replace them with a single loan that has a much lower interest rate and fixed monthly payments.

Lower Interest Rates Mean Significant Savings

The most compelling reason to use a loan for credit card debt is the substantial interest savings. Let’s compare the numbers:

Fixed Repayment Schedule Provides Clarity

Credit cards allow endless minimum payments that keep you in debt longer. A personal loan for credit card debt comes with:

• A predetermined loan tenure (typically 12-60 months).
• Fixed EMI amounts that don’t change.
• A clear debt-free date.
• No option to add new debt to the loan.

Debt Consolidation Simplifies Financial Management

Managing multiple credit card payments with different due dates can be overwhelming. Taking a loan for credit card debt consolidation offers:

• One single monthly payment instead of multiple.
• Easier budgeting and financial planning.
• Reduced chances of missed payments.
• Lower overall monthly outflow due to reduced interest.

Improved Credit Score

Your credit score can benefit from replacing credit card debt with a personal loan in several ways:

1. Reduced credit utilisation ratio.
2. Addition of installment credit to your credit mix.
3. Opportunity to build positive payment history with timely EMIs.
4. Eventual debt reduction improves the debt-to-income ratio.

How to Use a Personal Loan for Credit Card Debt

Effectively

Use a personal loan to pay off all credit card dues, then repay the loan in fixed, lower-interest EMIs.

Step 1: Calculate Your Total Credit Card Debt

Begin by listing all your credit card balances:

1. Note the outstanding amount on each card.
2. Document the interest rate for each card.
3. Calculate the total debt across all cards.
4. Determine how much you’re paying in interest monthly.

Sample Calculation: If you have three credit cards with balances of ₹60,000 (36% interest), ₹45,000 (42% interest), and ₹35,000 (38% interest), your total debt is ₹1.4 lakhs, with approximately ₹4,550 in monthly interest charges alone.

Step 2: Check Personal Loan Eligibility and Offers

Before applying for a loan for credit card debt, verify your eligibility:

• Income requirements (typically minimum ₹15,000-₹25,000 monthly)
• Credit score (ideally 750+)
• Employment stability (usually minimum 6-12 months)
• Age (generally 21-58 years)
• Existing loan obligations (EMIs should be within 50-60% of income)

You can easily check your eligibility for a personal loan through the Airtel Thanks App, which provides instant pre-approved offers based on your profile.

Step 3: Compare Loan Options and Apply

When selecting a personal loan for credit card debt, compare:

• Interest rates offered by different lenders
• Processing fees and charges
• Prepayment penalties
• Loan tenure options
• Disbursement time

Digital platforms like Airtel Finance offer personal loans with minimal documentation and quick approval processes. Most applications require:

• PAN Card
• Aadhaar Card
• Income proof (salary slips or bank statements)
• Address proof

Step 4: Create a Repayment Plan

Once your loan for credit card debt is approved:

1. Pay off all dues immediately.
2. Cut up or lock away credit cards to avoid temptation.
3. Set up auto-payments for your personal loan EMI.
4. Build an emergency fund to avoid future credit card debt.
5. Track your progress regularly.

Mistakes to Avoid When Using Personal Loans for Credit Card Debt

Avoiding common pitfalls is key to making the most of a personal loan when tackling credit card debt.

• Continuing to use credit cards: The biggest mistake is clearing card balances but then accumulating fresh credit card debt.
• Choosing too long a tenure: While longer tenures reduce EMI amounts, they increase total interest paid.
• Not reading the fine print: Be aware of processing fees, prepayment charges, and late payment penalties.
• Using the entire loan amount: Keep a small cushion for any additional charges or pending transactions on your credit cards.

Consolidating your credit card debt with a personal loan can simplify repayment, lower interest rates, and reduce financial stress. It’s a smart move for those seeking better control over their finances. For a seamless experience, consider using Airtel Finance via the Airtel Thanks App to apply quickly, access competitive rates, and manage your loan with ease.

FAQs

1. Is taking a loan for credit card debt a good financial decision?

Yes, it’s often beneficial, as personal loans offer interest rates that are 10-20% lower than credit cards, resulting in substantial savings and a structured repayment plan.

2. Will applying for multiple personal loans affect my credit score?

Yes, each loan application triggers a hard inquiry that can temporarily lower your credit score. It’s best to research eligibility requirements before applying.

3. Can I use a personal loan to pay off multiple credit cards?

Absolutely. Using a personal loan for credit card debt consolidation is an effective strategy to combine multiple high-interest debts into one lower-interest loan.

4. How long does it take to get a personal loan for credit card debt?

With digital lenders like Airtel Finance, you can receive approval in minutes and disbursement within 24 hours if all your documents are in order.

5. Should I close my credit cards after paying them off with a personal loan?

It’s better to keep them open with zero balance to maintain your credit history length, but cut them up or lock them away to avoid temptation.