Note From Kalen: Consolidation makes sense in some cases, when you can get a lower overall interest rate. Always do your research before taking out a loan to do this. See our debt guide for more. Enjoy!
In the US, about 42% of all households carry some form of credit card debt. The average debt for these households is $9,333, while low-income families incur an average of $10,308 in credit card debt.
The country might be one of the world’s richest nations, but its citizens are increasingly weighed down by debt. If your financial woes are overwhelming your family, you can do credit card consolidation to pay off your debt faster.
What is Credit Card Consolidation?
Credit card consolidation rolls all your balances into a single, lower payment. First, you either have to open a new credit card, take out a loan, or enroll in a debt management plant. No matter what you choose, it will help you pay off all your debt as it rolls multiple balances into one monthly payment. You can also save money since you only have to pay one interest rate.
Also known as a credit card consolidation loan, a personal loan ranges from $1,000 to $100,000. It depends on your lender. If you choose this option, you can consolidate your current debt into an unsecured personal loan, which you should be able to pay in two to seven years.
The Benefits of Credit Card Consolidation
- Low interest rate
Instead of paying multiple balances, each with its own interest rate, you only have to worry about a single monthly payment with one interest rate. This could reduce your interest expenses over time. Also, you might finally be able to set aside some money for the rainy days with this refinancing method.
- Fixed interest rate
The interest rate on your credit card can fluctuate. You could end up with higher rates if the Federal Reserve decides to raise interest rates. But by taking out a personal loan to consolidate all your debt, you end up with a fixed interest rate.
- Flexible repayment terms
Another advantage of getting a personal loan is a flexible repayment term. For instance, you can pay all your debt within two to seven years. And in doing so, you get lower interest rates.
How to Consolidate Credit Card Debt
Start by looking for the right lender who can offer you ideal terms.
Today, personal loan interest rates range from 6% to 36%. You can apply for a loan at a bank or a credit union. Another option is an online lender. Aside from providing an easy way to send money to a friend, an online lender offers personal loans with better interest rates. No matter what option you choose, your actual rate is going to depend on different factors—annual income, current debt, and credit score, to name a few.
For this to be advantageous, you need to choose your lender wisely. Look for a lender who can offer you interest that’s lower than your debt’s interest rate. If you’re in a rush, you might also want a lender who can fund your loan within days of your application.
How Much Can I Save?
Credit card consolidation, without a doubt, enables you to save money.
Let’s say you’ve amassed a $10,000 credit card debt with 19% interest. Assuming you have an excellent credit profile, you should be able to take out a personal loan with a low interest rate.
If you receive a 7% interest rate and, say, a three-year repayment period, you should save $4,634. You can even pay all your debts earlier.
A personal loan is the ideal debt consolidation method for you if you can get a rate that’s lower than your credit card debt’s interest rate.