Credit card spending can be an expensive way to cover the cost of unexpected expenses, like car repairs and surprise medical bills, due to high interest rates. Consumers are likely to pay some of the highest interest rates on revolving credit card debt that rolls over from month to month.
Worryingly, Americans are becoming increasingly dependent on credit card debt in 2021 as revolving credit balances soar to pre-pandemic levels. But fortunately, it may be possible to pay off credit card debt faster using a personal loan, while saving thousands of dollars in interest charges over time.
Keep reading to learn more about the benefits of credit card debt consolidation in a personal loan, and visit Credible to compare debt consolidation loan rates for free without impacting your credit score.
AVERAGE HOUSEHOLD PAYS $1,000 IN INTEREST AND CREDIT CARD FEES PER YEAR
Credit card consolidation can save some borrowers $4,000
Making the minimum payment on your credit cards can be an expensive way to pay off high interest debt. The average credit card interest rate is 16.44%, according to the Federal Reserve, which is much higher than rates for other financial products like auto loans and mortgages.
Consolidating credit card debt into a personal loan is a way to pay off debt faster and save money while doing so. Indeed, average personal loan rates are currently at record highs, according to Fed data – just 9.09% for the two-year loan term.
DEBT SNOWBALL METHOD VS. AVALANCHE OF DEBT
A credit card user who makes the minimum payment on credit card debt of $10,000 at a rate of 16.44% will pay $5,000 in interest charges. It will take nearly 14 years of monthly payments of $400 to get out of debt using this method.
This borrower has the potential to save thousands of dollars and pay off his debt 12 years faster by consolidating it into a personal loan. Paying off $10,000 in credit card debt with a two-year personal loan at a rate of 9.09% will save them over $4,000 over time, while adding only $50 to their monthly payment.
To determine your potential savings, use a credit card minimum payment calculator. Then, use Credible’s personal loan payment calculator to determine your new monthly payments and overall interest charges.
PERSONAL LOAN SETUP FEES: ARE THEY WORTH THE COST?
How to pay off credit cards with a personal loan
It’s relatively simple to consolidate credit card debt into a personal loan. The application process can be done entirely online, so you can start saving money without leaving the comfort of your home. Here is what you will need to do:
- Determine how much you need to borrow. You can consolidate the balances of one or more credit cards into a personal loan, so add up the total debt on all the accounts you want to pay off.
- Check your credit score. Borrowers with very good to excellent credit scores, defined by the FICO model as 740 or higher, will receive the lowest possible rates on a personal loan.
- Compare personal loan rates. Most lenders allow you to be prequalified to see your estimated terms with a soft credit check, which won’t affect your credit score.
- Apply for a formal loan. This will require a thorough credit investigation, which will appear on your credit report with minimal impact on your score.
- Pay off your credit cards. Personal loan financing is fast, usually available the next business day after loan approval. Use the funds from your loan to pay down your credit card balance to zero.
If you decide to consolidate credit card debt with a personal loan, it’s important to spend wisely to avoid racking up more credit card debt while you pay off your current debt.
You can browse current personal loan interest rates in the table below and visit Credible to compare rates from multiple lenders at once without affecting your credit score. Shopping around ensures you’ll find the lowest possible rate for your financial situation.
HOW TO GET A BALANCE TRANSFER CREDIT CARD
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