Credit cards can give savvy consumers a way to earn rewards on everyday spending, but they can also create a cycle of high-interest debt that’s hard for borrowers to pay off. Calculations show that it can take over a decade to pay off high-interest credit card debt if you only make the minimum monthly payment, especially if you keep adding to the balance before it’s fully paid off. .
Worryingly, Americans have increased their credit card balances at record rates in recent months, according to the Federal Reserve Bank of New York. With credit card debt levels rising, some consumers may be looking for ways to pay down their balance and break the cycle of high-interest debt.
One way to pay off credit card debt faster is to consolidate your debt by a fixed rate personal loan. Credit card consolidation loans come with predictable monthly payments over a set period of time, usually just a few years.
Keep reading to learn more about how using a personal loan can help you pay off your credit card debt faster. You can also visit Credible to compare personal loan interest rates for free without affecting your credit score.
A personal loan can help you pay off your credit card debt faster
The average credit card interest rate being 16.44%, according to the Federal Reserve, it can take 12 years and 10 months of minimum payments to pay off a $10,000 balance – and that’s only if you cut credit card spending completely while you pay down the debt. Minimum credit card payments are either a small fixed amount or a percentage of the total amount you owe, usually between 2% and 4%, depending on Experian.
Consolidating your credit card debt into a two-year personal loan could help you pay off your balances for more than 10 years faster, while saving you more than $4,000 in total interest charges. Indeed, the average rate of personal loans for this duration is at a record level of 9.09%, Fed reports.
Personal loan rates are also near historic lows for longer terms, Credible data shows. Well-qualified applicants who took out a personal loan during the week of Feb. 17 saw average rates of 10.28% for the three-year term and 12.85% for the five-year term.
By refinancing a five-year personal loan, you could pay off your debt nearly 8 years faster and save about $173 on your monthly payments. If you consolidate into a three-year personal loan, you can pay off your credit card balance 9 years and 10 months faster, while lowering your monthly payments and saving thousands in interest charges over time.
You can use Credible’s personal loan calculator to estimate your monthly payments and potential savings with this debt repayment strategy.
How to Consolidate Credit Card Debt When Rates Are Low
Borrowers can save more money than ever on credit card consolidation because personal loan rates are historically low. But just because average interest rates are low doesn’t mean all applicants will get a good rate.
Personal loans are generally unsecured, meaning they don’t require collateral that the lender can seize if you don’t repay the loan. Therefore, personal lenders determine a borrower’s interest rate and eligibility based on their credit history, including their credit score and debt to income ratio (DTI).
Here’s what the personal loan application process looks like — and how to get a low interest rate:
- Determine the total amount you need to borrow by adding up all the credit card balances you want to consolidate into one loan.
- Work on getting a good credit score to improve your chances of getting a low interest rate. You can sign up for free credit monitoring services on Credible.
- Get prequalified with a flexible credit application for compare interest rates with multiple lenders. This will not affect your credit score.
- Choose the best loan offer. Read the loan agreement to get a better idea of the repayment plan, including interest rate, origination fees and any prepayment penalty.
- Apply for a formal loan, which will require a serious credit check. Upon loan approval, funds can be deposited directly into your bank account the next business day.
If you are approved for the personal loan, you can use the funds to pay down your credit card balance to zero. Just be careful not to overspend in the future, so you don’t accumulate new credit card debt while you pay off the personal loan.
You can browse the current personal loan rates in the table below, and visit Credible to shop with multiple lenders immediately. This can help you find the lowest possible interest rate for your financial situation.
Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.