In today’s fast-paced financial environment, managing credit card debt has become increasingly challenging for many individuals. With interest rates often soaring between 30% to 40% per annum, many Indians find themselves stuck in a debt trap. According to the Reserve Bank of India, the outstanding credit card debt in India crossed ₹2.14 lakh crore as of January 2024 (Source).
One increasingly popular solution is taking out a personal loan for credit card debt. This approach allows borrowers to consolidate their high-interest debts into a single loan with potentially lower interest rates. In this guide, we’ll explore whether this strategy is right for you, the pros and cons involved, alternatives, and how firms like CredSettle can help you navigate this journey effectively.
What Does Taking Out a Personal Loan for Credit Card Debt Mean?
Taking out a personal loan for credit card debt means borrowing a fixed amount from a financial institution to pay off existing credit card dues. This method is often chosen to simplify payments, reduce interest outgo, and escape the minimum payment cycle that leads to a debt spiral.
Unlike credit card debt, which has compounding interest, personal loans come with fixed EMIs, tenure, and lower rates ranging from 11% to 18% per annum.
Why People Consider a Loan for Clearing Credit Card Debt
Opting for a loan for clearing credit card debt has multiple benefits:
- Lower Interest Rates: Personal loans often have significantly lower interest rates than credit cards.
- Fixed Repayment Schedule: You can plan your finances better with fixed monthly EMIs.
- Single EMI: Consolidates multiple card payments into one manageable EMI.
- Improves Credit Score: If managed well, this can positively affect your credit score over time.
Types of Personal Loans Available for Credit Card Debt
- Unsecured Personal Loans: Offered based on credit score and income, without collateral.
- Balance Transfer Loans: Transfer your outstanding card amount to a new loan account with lower interest.
- Top-Up Loans: If you already have an existing personal loan with a good repayment history, you can apply for a top-up.
Each type serves a different financial profile. Choose wisely based on your repayment ability and total debt.
Pros and Cons of Taking Out a Personal Loan for Credit Card Debt
Pros:
- Reduced interest burden
- Predictable monthly payments
- Credit score improvement if repaid on time
- Faster way out of revolving debt
Cons:
- Adds to existing liabilities
- Processing fees may apply
- Requires good credit score to get a better rate
- Default can hurt your score even more
How to Decide if It's Right for You?
When is a Personal Loan Ideal?
- When the interest rate is lower than your credit card APR
- When you have multiple cards and want to consolidate
- When you’re confident about repaying in fixed EMIs
When is Debt Settlement a Better Option?
- When you're unable to make even minimum payments
- When you're facing collection calls or legal notices
- When your income has reduced significantly
Understanding Debt Settlement Fees in India
Debt settlement involves negotiating with creditors to pay a lump sum amount that is less than the total you owe. However, most firms charge a debt settlement fee for facilitating this process.
These fees typically range from 5% to 15% of the settled amount, depending on complexity and negotiation.
According to an Economic Times survey, 30% of Indian credit card users opt for third-party services like debt settlement to resolve their dues (Source).
Alternatives to Taking Out a Personal Loan for Credit Card Debt
- Balance Transfer Credit Cards: Offer 0% interest for a limited period
- Debt Snowball Method: Pay off the smallest debt first to gain momentum
- Debt Avalanche Method: Pay the highest interest debt first
- Debt Management Plans: Offered by credit counseling agencies
- Debt Settlement Services: Legal negotiation and representation by firms like CredSettle
Real-Life Case Studies
Case 1 - Rohan, 32, Bengaluru
- Had ₹5.5 lakh spread across 5 credit cards
- Took a personal loan @13.5% interest
- Cleared all dues and is now paying a single EMI of ₹12,000
Case 2 - Priya, 28, Mumbai
- Was unemployed and defaulted on cards
- Opted for CredSettle’s debt settlement service
- Negotiated to pay ₹3.2 lakh instead of ₹6.5 lakh
- Paid only ₹2.95 lakh after CredSettle’s support and legal handling
How CredSettle Helps You Decide Smartly
- Free Consultation: Understand your repayment ability and options
- Settlement Fee Clarity: We charge only if we successfully negotiate
- Compare Options: Our experts help you decide between a loan or settlement
- Legal Protection: Safeguard your rights against harassment or court cases
Visit: www.credsettle.com to know more.
Watch What Our Clients Say
YouTube Video: "How CredSettle Helped Me Become Debt-Free in Just 6 Months"
Taking out a personal loan for credit card debt can be a smart financial move if you have the discipline and income stability to repay. However, for those struggling with financial instability, opting for a debt settlement route can bring more peace and legal relief.
At CredSettle, we help you evaluate every option with a data-driven approach, ensuring you make the smartest choice for your financial well-being.
According to our internal reports, clients working with CredSettle save up to 40% on their total debt burden.
Explore your options today – Schedule a Call with CredSettle
