WATCH VIDEO BELOW! BREAKING NEWS! MULTIPLE SECRET SERVICE OFFICERS HOSPITALIZED
MULTIPLE SECRET SERVICE OFFICERS HOSPITALIZED!!! – MUST SEE!!!……….CLICK HERE TO WATCH THE VIDEO
Personal loans can be a good way for consumers to consolidate their high-interest credit card debt and pay it down sooner. The interest rates for personal loans are typically a lot lower compared to credit cards. The approval rate for a personal loan is also fairly quick and often the same business day, depending on the lender.
Some consumers might find it helpful to move high-interest debt from credit cards to personal loans since the rates on them can be much more attractive than credit card rates, said Daren Blonski, managing principal of Sonoma Wealth Advisors in California.
“Additionally, having your debt consolidated helps with managing and focusing on paying it off,” he added.
There are at least five reasons a personal loan can help pay off credit card debt sooner:
- Lower interest rates
- Consolidated payments
- Defined debt-free date
- Improve credit score
- Pay down other debt
1. Lower interest rates
The average 24-month personal loan interest rate was 9.50% in May, according to the Federal Reserve data, while credit card interest rates were 14.52%.
Obtaining a personal loan means that a consumer could pay off all their credit card debt and instead have just one bill each month and save thousands of dollars in interest.
If you want to take advantage of today’s lower interest rates, check out online marketplace Credible. You can plug your information into their free online tools to find your rate.
A single personal loan can help a consumer pay off several credit cards.
For example: If a consumer has three credit cards totaling $12,000 in debt with an average interest rate of 17%, the minimum payment would be around $300 per month (assuming the cardholder pays 2.5% of the balance each month), said Jim Triggs, CEO of Money Management International, a Sugar Land, Texas-based nonprofit debt counseling organization. If a consumer only made minimum payments, it would take 335 months or nearly 28 years to pay it off. The consumer would pay over $15,000 in interest on that debt.
Instead, if a consumer obtained a personal loan to pay off the $12,000 of credit card debt at an interest rate of 9.50% with a 24-month term, they would pay off the personal loan in 24 months by paying $551 per month and about $1,224 in interest.
“You can see how much the interest rate and larger payments impact the cost of borrowing $12,000,” Triggs said.
See what kind of interest rates are currently available to you using Credible’s free rate table.
Credit cards charge a percentage of the balance, calculated monthly based on that current month’s balance. This means the payment fluctuates, but if there are no new charges each month the payment actually goes down month over month.
“This is a big part of why it takes so long to get out of debt if someone only makes the minimum payments on high-interest credit card debt,” Triggs said.
A personal loan is a good opportunity to get your credit card balance paid off sooner, said Leslie Tayne, a Melville, N.Y. attorney specializing in debt relief. Consumers need to avoid using the credit cards to supplement their income and to not use that card after they are approved for the personal loan.
Use Credible to compare multiple personal loan lenders within minutes to ensure you find the best offers.
Credible’s personal loan calculator can also help find the best personal loan rates.
2. Consolidated payments
A debt consolidation loan would turn multiple monthly debt payments into one monthly payment. This method can help streamline a consumer’s personal finances into one.
“Now is an ideal time to look for competitive consolidation loans to save on interest and make better progress towards paying off debt,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. “Having fewer accounts to keep track of can make it easier to manage a budget and control debt,” he said.
Credible offers personal loans from various lenders. To see current personal loan interest rates, check out Credible.
3. Defined debt-free date
The repayment terms of a personal loan give the consumer a definitive date of when they will pay off their debt entirely. Reaching that date can be a huge relief and financial freedom achievement for borrowers.
Since credit card companies allow users to add to the debt they are trying to pay off, it is difficult to project revolving debt payoff dates with accuracy, McClary said.
“Credit card payoff dates are often a moving target,” he said. “A closed-end loan only moves in one direction, which makes it easier and more motivating to stay focused on the goal of becoming debt-free.”
The interest rates for credit cards are often variable, so having a fixed interest rate “can often be helpful for controlling and projecting payoff timelines,” Blonski said.
Consumers considering consolidating their debt can visit an online marketplace like Credible to explore personal loan options.
4. Improve credit score
As consumers pay off their credit card debt, their credit score can rise. The amount of debt being used is called the credit utilization ratio. Consumers who pay down their credit card debt and resist adding more purchases onto the card will boost their credit scores since it makes up 30% of their FICO score.
One reason to use a personal loan is that they aren’t taken into consideration in a consumer’s credit utilization ratio, Tayne said.
“This shows lenders how much revolving credit is being used in relation to their total available credit,” she said. “When consolidating credit card debt into a personal loan, the utilization is lowered, which can boost a credit score.”
Personal loans can improve a credit mix, which is the variety of loans listed on a credit report.
“Lenders like to see that an individual can handle different forms of debt responsibly, which is why a diversified credit mix can increase scores,” she said.
5. Pay down other debt
The money that a consumer is saving from paying a lower interest rate can be used towards other debt such as student loans or car loans.
“Personal loan funds are provided as a lump sum to borrowers, so consumers aren’t limited to consolidating one form of debt, unlike most credit card balance transfers,” Tayne said.
Sticking to the repayment schedule of the personal loan is important because, if not, it could lower the borrower’s credit score. Consumers also need to be disciplined and not use the credit cards that were paid off, Triggs said.
“This is one of the biggest pitfalls to paying off credit card debt with a personal loan,” he said. “If one obtains new credit card debt while paying off the personal loan, it could put them in a much worse position than they were in prior to getting the personal loan.”