Using a Loan to Reduce Your Credit Card Debt – Do or Don’t? | Mint Good Credit Tips Video


This question comes from Shannon
from Mint’s Facebook page. And Shannon asks this. I have credit card debt
currently at 28 1/2% interest or greater. Should I take out a
lower interest rate loan to pay off my credit card debt? Very good question, Shannon. This only makes sense if
you’re going to save money. Here is the downside to
doing what you’re suggesting. It you take out, for example,
a loan against your home, for example a home equity loan
or home equity line of credit to pay off that
credit card debt, you are clearly going to save
money because the interest rate on that type of loan
is very, very low, 3 1/2% to 5% if you’ve
got good credit. So, from a dollars
and cents perspective, you’ve made a good decision. However, here’s what
else you’ve also done. You’ve now tied your
home to that new debt. And if you cannot make those
payments, for whatever reason, whether you lost a job, you had
a death in the earning family, major medical expenses, or
you go through a divorce, and you stop making the
payment, guess what? You can lose your house. So be very, very careful when
you’re paying off credit card debt with a lower
interest rate loan. If it’s tied to a home
it can be problematic, especially if you
start missing payments. But if it’s just what’s
called a signature loan, which is essentially an unsecured
personal loan that’s not tied to any sort of home, it
may not be a bad idea to do so. But remember, keep
those credit cards open and do not charge them up
or you’ll be back in debt twice over.

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