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Can I pay my debts off with a credit card?
In many cases, you won’t be able to make a loan or mortgage payment with a credit card. This is because it’s seen as risky, as you’re taking on more credit to repay money you’ve borrowed from elsewhere. You’ll probably find that most lenders won’t accept a credit card for these kinds of payments.
But that’s not to say credit cards can’t be used in some way to pay off certain debts. If you have a good credit history, you may qualify for certain types of credit cards suited to clearing other debts.
A balance transfer credit card
If you have a few credit cards that you’re paying different interest rates on, you could use a balance transfer credit card. With this type of credit card, you move your balances over from your current cards to a single new credit card. By doing this, your old balances are cleared, and the debt is moved to a new credit card with a different interest rate.
You’ll then have one single credit card with just one monthly payment to make, which can make things easier to keep track of.
You may be able to find a balance transfer card with a cheaper interest rate than what you are currently paying, so you could save by moving your balances over. Some credit cards even offer 0% interest rates for a set amount of time, but you usually have to have an excellent credit history to qualify for this kind of card.
Remember, you’ll probably have to pay a one-off fee to transfer the balance.
A money transfer credit card
This type of card allows you to transfer cash from a credit card to your bank account for a fee. You should think of this as like taking out a loan, because you’ll need to pay the money back, and some cards charge you interest daily until you do.
A money transfer card may be worth considering if you have a loan or overdraft that charges a higher interest rate. You could transfer the cash over to your bank account and then use the money to pay off your debts. However, you must remember to repay what you borrow as soon as you can.
If it’s a 0% interest money transfer then it’s important that you repay what you borrow before this period ends if you can, so you avoid paying any interest.
Again, like with a balance transfer credit card, you’ll almost always have to pay a one-off fee to transfer the cash to your bank account.
Is it a good idea to borrow more?
Unless it’s a lower interest rate, taking out another credit card is probably something to avoid for the moment. Borrowing more money to pay off old borrowing might be a sign that your finances are getting a little out of control, and you may just be delaying the inevitable.
Instead, it’s important that you try to cut down on your spending elsewhere and focus on clearing your debt as soon as you can. If it’s credit card debt, try to make more than the minimum payment on each, and focus on the credit cards that charge the highest interest rates first. It may take time, but with patience and discipline, you should start to see results.
Consider a debt consolidation loan
If you’ve got a number of different debts that you’re finding it difficult to keep track of, you may want to consider a debt consolidation loan instead. This is where you take out a loan to pay off all your existing debts, and then make one payment a month towards that loan.
While consolidating your debts may mean you pay less each month than you were with several different debts, you could pay more overall as you’ll be paying off the loan for longer. The interest rate may also be higher than what you’re currently paying.
However, the advantage of a debt consolidation loan is that it may make things easier to keep track of and could reduce the chance of you missing a payment – which can be costly and damage your credit history.
Ocean offers a range of different loans for debt consolidation. You can find out more about them here.