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You can typically use the funds from an unsecured personal loan for nearly any reason. However, lenders may exclude certain purposes, such as paying off student loans, paying tuition, investing, or making a down payment on a property secured by a mortgage loan. Some lenders specialize in helping people with credit challenges consolidate credit card debt with a personal loan. Personal installment loans for bad credit can help you pay off your credit cards. In general, you’ll need good credit and a stable source of income to qualify for a personal loan unless you work with a lender specializing in bad credit personal loans.
Can an Unsecured Personal Loan Help Improve My Credit Score?
Personal installment loans for bad credit can help you build a good credit history in two ways.
When you pay off your credit card debts with a personal loan, the credit bureaus typically report that activity within 30 days. When your credit card balances reach zero, you have a lower credit utilization, which can help improve your credit score.
Credit utilization = Total credit card debt / Total credit limits
If the lender reports your loan payment activity to the credit bureaus, your on-time payments help build trust with future lenders and could translate to a higher credit score over time. It’s crucial not to use your credit cards, however. People often fall into the financial trap of paying off high-interest credit card debt with a personal loan and then running up the balances on those cards.
Why is a Personal Loan Better Than a Balance Transfer Credit Card?
Suppose you have a good payment history but struggle to pay down multiple high-interest credit card balances. In that case, you may be tempted to transfer your credit card debt to a single card providing a low introductory interest rate. However, you must have a good to excellent credit history to qualify for low-interest balance transfer cards. Plus, balance transfer credit cards offer zero or low-interest rates for a limited period.
With a personal loan, your interest rate and monthly payments stay the same throughout the loan term. A balance transfer card can create financial trouble if you cannot repay the debt before the low-interest rate period ends.
Personal installment loans for bad credit can help you pay off your credit cards, even if your credit scores are lower than average. Of course, there’s no one-size-fits-all answer to debt management. Even with imperfect credit, personal installment loans for bad credit could help relieve you of high-interest credit card debt. To learn more about how Tio Rico can help, contact us today!
