If, like many Canadians, you find yourself with credit card debt and wonder if there’s a good solution for you, there are a few options out there and some are better than others. While we may dream of a lottery win to pay off debt and move to the sunny shores of the Caribbean (maybe that’s just me), here are ten reasons you should consider moving your credit card debt to a personal loan from Borrowell.
1. Save on interest charges
Perhaps the most compelling argument for moving your credit card debt to a term loan is the money you’ll save on interest charges over the course of the loan versus how much you would pay in interest if the balance remains on your credit card. Consider that the average annual credit card interest rate is 19.9%. On a balance of $5,000, that’s $995 in interest in one year. If you pay only the minimum, it will take years to pay off and you’ll end up paying thousands in interest. But consider that a $5,000 personal loan with an interest rate of, say, 12.9% would have $350 LESS in interest a year and you can see just how much you’ll save if you move that debt.
2. Know when you’ll be debt free
With a set term of either 3 or 5 years, you’ll have a direct line of sight on the day you’ll be debt free. And don’t we like knowing when we’ll reach our goals?
Multiple credit card bills, different due dates, different minimum payments. It’s not impossible to manage, but moving your credit card debt to a term loan and having one monthly payment to manage is a lot simpler than many.
4. It can help your credit score
Not all debt is created equal. A term loan is considered instalment debt, which is not factored into calculating your credit utilization ratio. And the lower your credit utilization, the better your credit score.
5. Be happy
Neuroscience has shown that just making a decision can help you feel in control, and reduces worry and anxiety, so wear that badge of pride knowing that you made a smart decision toward paying off your credit card debt with a term loan.
6. Better than refinancing your mortgage
While it may sound like a good idea to roll up debt into your mortgage, think twice. You’re essentially trading unsecured debt for secured debt with your house as collateral. Not only that, but you’re locking your credit card debt into the term of your mortgage, which can be 20 to 30 years.
7. Smarter than a pay-day loan
Pay-day loans can have interest rates up to 500%, which won’t be helping you pay down that credit card debt in the long run – or even the short run.
8. Better than taking a cash advance on another credit card
Shell game anyone? Trading credit card debt for credit card debt is like robbing Peter to pay Paul. The only winner here is the credit card company, because you’ll be paying interest the day you take the cash advance, and there will be a period of time when you’re paying interest on both balances.
9. Keep your registered retirement savings
If you have any registered retirement savings, taking money out of your RRSPs would be subject to a withholding tax up to 30% depending on the amount of the withdrawal, and you would permanently lose the contribution room of those funds.
10. Easy online application
So if you’ve made it here, chances are you’re ready for the next move. Checking your rate online with Borrowell only takes a minute and won’t affect your credit score.
What have you got to lose (but a minute)?
Pierre Dupuis is a guest contributor and spends his spare time collecting Wonder Woman paraphernalia and painting.
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Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
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