Q. I have $17,000 in credit card debt. Is it worth getting a personal loan to pay that off? The interest rate would be less, but there is also a loan origination fee.
A. Mathematically, I can’t tell which is better as some necessary information is not available. The question becomes how much interest will you save over the period of time the personal loan will be outstanding versus the origination fee incurred to set up the loan.
From the practical perspective, I’m not a fan of this strategy. As the saying goes, “You can’t refinance your way out of debt.” Instead, I’d focus on creating a strategy to repay the debt as quickly as possible. Here a few options to consider: (1) sell unused items around your house, (2) get a part-time job or work some overtime, (3) cut back on expenses for a period of time, (4) temporarily cut back on saving in your 401k/403b/etc., (5) etc. These are just a few examples, but certainly look at your spending for others that may apply to you. Dedicate the savings or extra income to debt reduction.
The point is to create extra cash flow to pay off the debt faster. The sacrifice won’t be for a lifetime – only of a season of your life. The sooner you can get to debt-free status, the sooner you start to invest and build wealth.
For some help on prioritizing your debts as you pay them off, please check out a post on doing just that. The answer may surprise you!
Best of luck to you and thanks for your question. Keep focused on getting out of debt and you’ll be surprised how quickly it will get done. Let me know if you have any other questions!
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.