Money Talks, So Should You

Q&A: Should I get a bank loan to pay off credit card debt?

Steve Doster
by Steve Doster, The Garrett Network  (@dosterfinancial)

Absolutely. A bank loan can be a great way to pay off credit card debt. It’s called a consolidation loan, and the best place to shop for one is at a credit union. Not a member? Not to worry. 

Qualifying for credit union membership is about as easy as getting a Costco membership. Just call a few local credit unions to find out their requirements to join.

READ: Talk your way out of credit card debt

Consolidation loans have a fixed term of three to five years and charge a fixed interest rate that is usually lower than credit cards. However, there are a few landmines with consolidation loans. The first is that you cannot go back to using your credit cards. A consolidation loan will pay off balances and now there will be plenty of available credit to tempt you. Don’t fall back into this trap! 

READ: Should I take money from my money-market account to pay off my credit card? 

The second thing not to do is take more consolidation loan than you need. Believe me, the banker will try to put “extra cash” in your pocket by approving your consolidation loan for more than your credit card debt. Just say “no thank you.” Remember you are doing this to get out of debt, not get deeper into it.

Good luck!  

 

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Steve is president and founder of Doster Financial Planning, a commission-free firm based on San Diego, CA. He is a CERTIFIED FINANCIAL PLANNER™ professional with an MBA fom Arizona State University and a BS in mechanical engineering from the University of Arizona. Steve is proud to say he doesn’t sell financial products or earn commissions on the advice he provides to clients. His primary goal is to educate people to understand and select the best ways to achieve their unique financial future.