Ah, the holidays. An excess of good cheer, plenty of party hopping and … lots and lots of shopping. And if you’re like many Americans, much of that shopping will be done on credit card.
While that might make for holiday cheer, it could put a dent in your new year – when the bills come due. Consider that the average interest rate for credit cards is nearly 15%. And store credit cards often charge 20% or more.
So, with rates as low as 4.29% APR, it’s no wonder that many are choosing a personal loan instead. With online applications and same-week funding, a personal loan could take some of the fear out of spreading all that holiday cheer. Here are three reasons why:
1. You’ll Save A Lot of Interest
Presents, dinners, decorations … it can add up fast. And if you plan to travel this holiday season, the tab for the holidays could be higher than planned. So let’s say the holidays will put $2,000 on your credit cards. At an APR of 15%, that’s gonna cost you. Let’s crunch some numbers to see the difference between a loan and plastic.
A $2,000 personal loan with a three-year term and a 4.29% APR would cost you only $135 in total interest. The same amount on credit cards with a 15% APR would cost you $496 over the same three-year period.
In short, a personal loan will save you more than $360. That’s a new bike for little Johnny, a dollhouse for Sarah – or a post-holiday craziness spa day for mom.
And if you’re worried about all those miles or reward points you’ll miss out on, one strategy many employ is to use their credit cards, then pay them off with a personal loan.
2. You’ll Have a Clear Payoff Date
Paying off credit card debt makes a great New Year’s resolution – because like any New Year’s resolution, it ain’t gonna happen. That’s because credit card debt has no clear pay-off date. As a result, mustering the ongoing discipline to pay down your credit card debt requires the equivalent of a Christmas miracle.
But personal loans are different. You choose your payoff date when you apply for the loan, usually anywhere from one to five years. That way, you know the exact amount of your monthly payments in advance, unlike credit card minimum payments that change from month to month. Better yet, you’ll have a clear and attainable date when you’ll be debt-free. Call it a gift to yourself.
3. You Won’t Kill Your Credit
Believe it or not, all debt is not created equal. In fact, credit rating agencies look upon credit card and personal loan debt as differently as Santa sees the naughty and nice.
That’s because credit cards are known as “revolving credit” accounts and are seen by some as not so nice. In fact, use them unwisely and they can have a negative impact on your credit score. For instance, if you use more than 30% of the available credit on credit cards, your credit score could suffer. This is why many financial experts suggest paying down credit cards as soon as you can.
On the flip side are personal loans, which are known as “installment debt,” and on which credit rating agencies tend to look much more favorably. That’s because with a personal loan you are approved for a specific amount, have a clear payoff date, consistent monthly payments, and usually a lower interest rate.
It’s the convenient way to put more cheer into your holidays, without putting more financial pain into your New Year.