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A credit card consolidation loan is a personal loan you use to pay off multiple high-interest credit cards. The benefit is that you’ll pay off your existing debts with those credit card companies and instead have just one monthly loan payment to worry about. You could possibly save on interest too, since credit cards tend to come with higher interest rates than personal loans. And if used correctly, you could see an improvement in your credit score.
Follow these steps to find the best credit card consolidation loan for your personal situation:
If you’re happy with how much you could save, go ahead and submit the full application with the lender. Otherwise, continue comparing personal loan providers until you find one that fits your needs.
Here was Matt’s credit card situation before he took out a consolidation loan:
|Credit card one||Credit card two||Both cards|
|Balance and rate||$4,500 at 19.99% APR||$3,200 at 13.24% APR||$7,700|
|Minimum monthly repayment||$90||$64||$154|
|Time it takes to pay off||43 years and one month||16 years and 8 months|
If he only made the minimum payment each month, it would have taken him over 40 years to pay off credit card one — not to mention that he’d end up paying over four times the amount he borrowed in interest.
Here’s how much Matt saved by taking out a $7,700 consolidation loan with an APR of 13.39%:
|Total repayment||Time it takes to pay off||Total savings|
Consolidating your credit card debt with a personal loan isn’t always the right move. Consolidate at the wrong time and you could actually lose money. You might want to hold off on consolidating or consider other options when:
A debt consolidation loan and a balance transfer credit card are similar in purpose, but there are some key differences. The most obvious is that a loan generally has equal monthly payments while a balance transfer credit card has variable payments based on a percent of the balance owed.
Balance transfer credit cards are used to transfer one or more high-interest amounts from a different provider. Typically, these credit cards have promotional periods that generally last for 6 to 12 months and offer low or 0% APR. A balance transfer credit card’s usefulness is on a relatively tight timeline. After the promo period is up, the APR reverts to the standard purchase rate, which can be 20% or more.
Debt consolidation loans are also used to shift debt away from high-APR credit cards. Rather than taking advantage of a short-term promotional period, these are likely to have a lower APR than the non-promotional rate of a balance transfer credit card. A loan may be better when you want to pay your debt off over a longer period of time.
Take a deeper dive into balance transfer credit cards vs. debt consolidation loans
Debt tends to stick around once you’ve picked it up. Use these tips to avoid getting into debt in the future:
Consolidating your credit card debt with a personal loan can help simplify repayments. And you might be able to save on interest if you qualify for a lower rate than your current credit cards. But you might want to hold off if you’re planning on applying for another loan in the near future.
Not sure a credit card consolidation loan is right for you? Explore other debt consolidation options with our guide.
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