Want to know a better way to pay off credit card debt?
Here’s what you need to know.
Credit Card Consolidation: Pay Off Credit Card Debt
Americans owe $1 trillion of credit card debt.
When it comes to credit card debt, interest rates can be higher than interest rates for you mortgage, auto loan and student loans combined. Before you drown in interest, consider this better strategy: credit card debt consolidation.
You can consolidate your credit card debt with a personal loan, which is also known as a credit card consolidation loan. With a personal loan, you can consolidate your existing credit card debt into an unsecured personal loan that is typically repayable in 2 to 7 years. Personal loans range from $1,000-$100,000 depending on the lender.
Why consolidate credit card debt?
There are several reasons to consolidate credit card debt.
- Cut your interest rate
- Predictable monthly payment
- Easy application process
Cut your interest rate
Some credit cards have APRs as high as 10-25%. That means you could be paying a higher interest rate than all your other consumer debt combined. In some cases, high interest charges can make it very difficult to pay off credit card debt. In contrast, depending on your credit profile, personal loan rates today start as low as 5.47%.
Predictable monthly payment
Credit card debt has a variable interest rate, which means that the interest rate may change over the course of your credit card debt repayment. In contrast, personal loans have a fixed interest rate. That means you pay the same, fixed amount each month regardless of changes in interest rates, which is more predictable.
Easy application process
You can apply online for a personal loan, and can start by comparing lenders and interest rates. Lenders will evaluate your financial and credit profile, including your credit score and income, to determine your interest rate. If you receive an interest lower than the interest rate on your credit card debt, it may be financially advantageous for you to consolidate your credit card debt. Also, your personal loan can be funded within days, so the process is relatively quick.
How much money can I save with credit card debt consolidation?
Here’s how to think about how much you can save with credit card debt consolidation.
Let’s assume that you have $10,000 of credit card debt at an 18% interest rate and make a $250 monthly payment. With a strong credit profile, let’s assume you can consolidate your credit card debt with a personal loan at a 7% interest rate and five-year repayment term. You would save $52 each month and save $3,369 in total.
You can use this credit card consolidation calculator to see how much you can save when you consolidate credit card debt.
