Credit card debt is a drain on your budget that can prevent you from saving for life’s milestones, like a down payment on a house or your child’s college tuition. And given that credit use jumped 8.8% in the second quarter of 2021, you might be one of many Americans looking for ways to get out of debt.
A common way to reduce an uncontrollable credit card balance is to take out a debt consolidation loan. It’s a type of personal loan that you take out at a lower interest rate than what you’re currently paying on your credit cards to pay off debt faster and save money while doing it. doing.
In fact, you could save thousands of dollars by taking out a personal loan to pay off your credit cards. Borrowers who have taken out a personal loan for debt consolidation on Credible’s online marketplace in May 2020 had a potential savings of $2,374.
Make sure you’re getting the lowest possible interest rate on a personal loan by comparing offers from multiple lenders. You can compare personal loan offers on Credible’s online loan marketplace, all without impacting your credit score.
DOES A CREDIT CARD BALANCE TRANSFER AFFECT YOUR CREDIT REPORT?
How a Credit Card Consolidation Loan Saved Borrowers $2,000+
Personal loans are a popular option for debt consolidation because they have a low fixed interest rate and a consistent repayment schedule. An unsecured personal loan does not require the borrower to provide collateral, allowing quick access to funds. Often, the loan amount can be paid into your bank account as soon as the next business day after approval.
These benefits are important, but the real reason personal loans are such a popular debt repayment strategy is the potential for cost savings. Credit card issuers offer some of the highest interest rates on the market, while personal loans may offer a lower rate to borrowers with good to excellent credit. In fact, well-qualified consumers who took out a personal loan for debt consolidation through Credible’s online loan marketplace saw a potential savings of nearly $2,400.
Credible analyzed a sample of borrowers with a credit score of 720 to 779 who took out a 3-year debt consolidation personal loan during the month of May 2020. Borrowers consolidated $18,000 on average, with a median personal loan rate of 8.99%. Based on the average credit card interest rate of 16.61% at that time, borrowers could save $2,374 on total interest payments and even reduce their monthly payments by $66.
DEBT SNOWBALL METHOD VS. AVALANCHE OF DEBT: WHAT’S THE DIFFERENCE?
The amount you can save depends on the personal loan rate you can get. Interest rates on personal loans depend on the borrower’s FICO score and debt-to-equity ratio, as well as the loan amount and repayment term.
Since interest rates on personal loans can vary from lender to lender, it’s important to shop around to find the best possible rate for your financial situation. You can see your estimated personal loan rates from multiple lenders by filling out a single form on Credible.
3 RISKS OF TRUSTING BALANCE TRANSFER CREDIT CARDS
See your estimated monthly payments with a personal loan calculator
While credit cards have a minimum payment requirement, personal loans have fixed monthly payments. This way you will always know how much you owe and when it is due. Additionally, many personal lenders offer a reduced annual percentage rate (APR) if you sign up for automatic payment withdrawals, giving you an added advantage for making your payments on time.
Often, borrowers can get a lower monthly payment by refinancing their credit card debt with a personal loan thanks to the lower interest rates offered by personal loans. Here’s how to find your monthly payment using Credible’s personal loan calculator:
- Total up your credit card debt. With personal loans, you can combine the balances of several credit cards or pay off just one. You will put the total in the “loan amount” box.
- Find your personal loan rate. You can be prequalified for a personal loan on Credible to estimate your potential interest rate without affecting your credit score.
- Select the term of your loan. Longer-term personal loans may offer lower monthly payments, but you’ll likely get a higher rate and pay more interest over time.
PERSONAL LOAN SETUP FEES: ARE THEY WORTH THE COST?
This calculator will help you determine your personal loan payment as well as your total interest paid over the life of the loan. This way you can see if paying off your credit card debt with a loan is the best option for your financial situation.
Still not sure if credit card consolidation is right for you? Contact an expert loan officer at Credible to explore your options for paying off high-interest credit card debt.
HOW TO AVOID AN EARLY REDEMPTION PENALTY
You have a financial question, but you don’t know who to contact? Email the Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.