If you have credit card debt, you are in good company. Studies show that the majority of Americans have some form of credit card debt. And 14 million Americans have five figures or more worth of debt from credit cards alone. Have you considered taking out a personal loan to pay off credit cards? Personal loans often have lower annual percentage rates (APRs), meaning you’ll pay less on the money you borrow. Yet, there are also some drawbacks to using personal loans to eliminate debt from credit cards. For example, you may not qualify for a personal loan APR that is lower than the rate you pay on your credit cards.
In this guide, we will tell you all the pros and cons of using loans for credit card debt. Plus, we’ll give you tips for paying down credit card balances if you don’t qualify for an affordable loan. Keep reading to learn more.
In 2023, the average interest rate on credit cards is a little bit over 20%. This is an average, so some credit cards have lower APRs, and others have higher interest rates. On average, personal loans have lower interest rates than credit cards. In 2023, the average is around 10–20%. The exact rate you will pay on a personal loan depends on various factors, including:
Other factors, such as the term period on your loan and whether you take out a secured or unsecured loan, also play into your APR.
A personal loan is one of the best solutions for paying off credit card debt in 2023. This is especially true if you can find an affordable loan (more on this later). Benefits of using loans for credit card balances include:
These last two advantages only apply if you use your personal loan to pay off all your credit cards. We don’t recommend taking out a loan to pay off one credit card if you carry debt on multiple lines of credit.
Of course, all these benefits can not come without some drawbacks. The following disadvantages of personal loans could make this option less attractive for certain borrowers:
The first two issues primarily occur when you have no credit, poor credit history, or a low credit score. The third con happens when people use loans to pay off debt but continue using their credit cards while paying on the loan. Luckily, financial institutions like First Financial offer personal loans for people with poor credit.
So, what if you do not qualify for an affordable loan? In that case, the goal is to pay down your credit cards as quickly as possible. Why? The faster you pay down your debt, the less you forfeit in interest. Here are the top ways to do just that.
The first thing you should do is stop swiping. Use credit cards for emergencies only until you pay off your debt. Also, start thinking about what you will use your credit card for once you pay off your debt. Experts recommend reserving credit for the following big-ticket purchases only:
Often, larger credit card purchases come with interest-free periods. For example, you may have six months to pay off your purchase before you’re charged interest.
As we mentioned, credit card debt is extremely common in the US. Financial experts have come up with many strategies for eliminating credit card debt quickly. Some of the most effective strategies are:
You can also come up with your own debt-canceling strategy based on your unique needs. The best strategy for you is the one that gets your balances paid down the fastest.
Another idea to consider is a balance transfer. Many credit card companies allow you to transfer all your outstanding credit card debts to a single account. Often, balance transfers also come with a preliminary grace period where you don’t have to pay any interest on your balance. However, you may have to pay a fee on the balance you transfer. So, this solution may not be best for people with significant credit card debt.
Taking out a personal loan to pay off credit cards can be a great way to get out of debt. But keep in mind that some people may not qualify for a personal loan without a good credit history. Are you searching for a personal loan you can qualify for? First Financial is on a mission to provide personal loans to borrowers just like you. Click here to get started on your loan application!
When you have credit card debt, it can feel like you’re drowning in monthly payments. The truth of the matter is you aren’t alone. There are millions of other people who also deal with credit card debt. According to a GOBankingRates survey, 30% of Americans carry between $1,001 and $5,000 in credit card debt. That same survey reported that 15% of people surveyed have $5,001 or more in credit card debt. While about 6% of those people have over $10,000 in credit card debt. Finding a way to consolidate credit card debt can make you debt-free.
You’re in the right place if you are looking for the best ways to consolidate credit card debt. Here’s what you need to know about consolidating credit card debt.
When looking at options to consolidate credit card debt, one tool that can help is an unsecured personal loan. You can use a bank, credit union, or an online lender that can provide money for you to consolidate your debt.There are a few benefits of doing it this way. Depending on the lender you choose, they can automatically make the payments directly to the credit card companies, so you don’t have to. Another reason a personal loan can be a good option is that, ideally, you will have a lower APR on your debt.Keep in mind that the lender you choose for a personal loan can also make a difference in your interest rates. For example, credit unions are considered not-for-profit lenders.
This means they can provide more flexible loan terms for their members. This could work to your advantage if you are a borrower with fair or bad credit (689 or lower on the FICO scale).
The reason is that federal credit unions can only charge a maximum APR of 18%. Instead of using a personal loan from a credit union, you might decide to go with a bank. Banks could work well for those who have good credit. Especially if you are an existing customer. Choosing to get a personal loan from a bank can also give you access to more significant loan amounts. On top of that, discounted rates may be available too.You can try an online leader if you don’t want to use a credit union or a bank for a personal loan. With an online lender, you can check to see if you pre-qualify without it affecting your credit score.
The great thing about pre-qualifying for a personal loan is it can give you information about the loan amount, possible payment amounts, and interest rates.
Another great option is to do a balance transfer as you consider consolidating credit card debt. Also known as credit card refinancing, balance transfers move debt from one credit card to another. If you have a credit card with a high-interest payment, this strategy could help you save money. Most balance transfers offer a promotion period where they don’t charge any interest on the balance. This time frame is often between 12 and 18 months. For example, moving debt to a credit card with an introductory APR of 0% could help you pay off the balance interest-free.You can qualify for most balance transfer cards if you are a borrower with good or excellent credit (690 or higher on the FICO scale). You want to do your research before making a final decision on the balance transfer card. Some cards can charge a one-time balance transfer fee from as low as 3% to 5% of the total amount being transferred.
It’s a good idea to calculate whether the interest you can save over time will clear the cost of the fee.
Another one of the best ways to consolidate credit card debt is by getting a home equity line of credit. Homeowners can benefit from this debt consolidation option because you can use the equity in your home to pay off high-interest credit cards. You can also consider using a home equity loan. It can provide a lump sum of money with a fixed interest rate compared to a line of credit with variable interest rates. Usually, in the first ten years, a HELOC requires interest-only payments. Which is known as the draw period. This means you must make more than the minimum payment to reduce the principal and pay down debt. With the loan being secured by your house, it’s a high chance you will get a lower interest rate than a personal loan or balance transfer credit card.
It is equally important to note that you could lose your home if you don’t keep up with the payments.
One last way to consolidate your credit card debt is to use a debt management plan. The great thing about this option is that it rolls all your debt into one monthly payment at a lowered interest rate. If you struggle to pay off your credit card debt but have bad credit, this option may work best for you. Also, a debt management plan doesn’t affect your credit score since you are not borrowing money or opening a new line of credit.
When you consolidate credit card debt, you give yourself more financial breathing room. Debt can stop you from doing the things you enjoy, like taking a vacation or buying an item you want. You should know that it is possible to eliminate your credit card debt and become debt free. You just have to take things one step at a time. If you do a balance transfer, get a personal loan, or use a HELOC, learning more about these options can help your financial future. If you are ready to start on your path to consolidating credit card debt choose a company that cares about your financial future. Need fast cash?
Reach out to our dedicated team of financial professionals to get started today!
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