If you are considering small loans to pay off credit cards, you really need to think long and hard about your current financial state and what impact borrowing more money will have on your life.  While there are certainly some times when it makes sense to do this, there are many more times that it simply does not make sound financial sense to do so.  In this article, I would like to explore some of the good and bad reasons to take out small loans to pay off credit cards, and some of the places you will need to look when you need to borrow money quick, but have bad FICO scores.

When it Makes Sense

As you consider taking out a new debt to reduce your old debt, there are just a few times where it really makes good sense to borrow the money.  Here are some of those reasons you may want to consider before you sign any paperwork for a bank note or look at government assisted consolidation money.

Decreased Interest Rates:  If you are going to get a great rate of interest when you take out a small loan, it might make sense to pay off your high interest rate credit cards this way.  This is the most common reason people look to borrow money wisely when they run up their revolving charge accounts.  Since it generally makes good financial sense to do this, it’s probably a good idea.  If you can borrow $5,000, for example, at 7% interest and your charge cards have a balance of the same amount at 14% interest, it’s easy to assume it’s a good idea.

To Improve Score:  I know that it might not make sense to think of improving your score with another debt, but it really can and does work.  Since the amount of available credit is compared to your current card balances, paying off the accounts with small loans can improve your FICO score.  This method can work, but is not something that is not done without risk.

When Maxed Out:  Be careful of this one.  If you don’t have any charge room, but fell you need some in case of an emergency, it might be a good idea.  This assumes that you will not charge the account back up.  Having a little cushion in case of an emergency is a good idea.

If Making Minimum Payments:  If you are only making the minimum payments and feel the only way you will pay more is if you must make a small loan payment, it might make sense.  Many people get stuck in the rut of making minimum payments to multiple accounts, even if they have additional funds available.   If you want to pay off credit cards by borrowing money so you will actually pay down the debt quickly, it might be a good method to consider.  There are ways to terminate and eliminate unescured debt quickly.

It Makes No Sense

History of Maxing Out Accounts:  Some people will simply take out small loans to pay off credit card debt only to max their cards out again.  This makes no sense at all.  If you feel you will fall into this trap, don’t borrow any many to drop your charge balances.  If you are getting calls from collections, you may need to look at how to deal with collection agencies instead.

Collateral Needs:  If you are putting up your car title or home, it might be a bad idea to borrow money to take care of your charge debt.  If you fall behind, you could lose your car, which would only compound your financial issues further.  Keep this in mind and make a good decision based on facts, not desires.

When Struggling Financially:  If you are struggling to make the minimum payments, even if spread out over several accounts, small loans that are used to pay off credit cards might not be in your best interest.  If you are going to struggle with money, there’s a good chance you’ll end up charging expenses on your card accounts.  This will only compound your issues and will not help you out in the long run.  There are other ways to reduce charge account debt.

When Rates Aren’t Favorable:  If you have a bad FICO score, you may end up paying almost the same rate of interest on a small loan as you would on your credit cards.  When you borrow money to pay off debts, you need to have a relatively substantial interest reduction to make it worth it.

Places to Go to Borrow Money

If you are looking to borrow money, there are certain places you will want to look.  While it might not make sense to borrow the money, if you are determined to do it, I can at least provide you with some information about where to borrow emergency cash.

Home Equity:  Even if you just need a small loan, a home equity line of credit might help you pay off your charge cards in an effective manner.  Since rates are typically low and you are only putting up a little more money on your debt to the bank, it might make sense to consider this.

High Risk Lenders:  If you need to borrow money quick, but you have bad credit, you may have to consider a high risk or guaranteed approval personal loan.  If you take out a small note to pay off your charge cards this way, you must accept the risks and rates of interest that come with it.

Car Title Lenders:  Use caution.  You will have to put up your car title to borrow money this way.  Still, if you have no other options, it might be something to keep in mind.

Alternatives That Work

Before you go out to a bank and apply for small personal loans of $5000 or any other amount, consider using some other methods to pay off credit cards.

Debt Settlements:  If you are struggling, find out how to negotiate a debt settlement.

Make Bigger Payments:  If you make the minimum payments, it will take decades to get the balances down.

Consolidate Accounts:  Consider rolling all your accounts into one with a lower rate of interest.  You’ll save a lot of money over the course of your payments.  This might be a better plan than small personal loans of 1000 dollars or any other amount.

Cut the Credit Cards:  Keep the accounts open, but cut all but one of them up and only use it for an emergency.

Limit Use:  Stop charging!  If you are looking at small loans to pay off credit cards, you need to stop increasing your balances!