Lots of people have credit card debt that hangs over their head. In fact, Americans aged 18 to 65 have an average of nearly $5,000 in credit card debt, and that’s individuals. That means adult couples average almost $10K in credit card debt between the two of them. A good portion of those people would love a way to get out of credit card debt, and one of the most common options for doing so is by using a small personal loan to consolidate credit card debt.
Should you consider rolling all or part of your credit card debt into an easy loan? Read on for some of the potential benefits to doing so.
Potential Benefits of Consolidating Your Credit Card Debt Using Small Personal Loans
There are several reasons why this might be a reasonable option for you, but of course, the loan terms that you are offered when you apply for a loan online and the terms of your credit cards would have a big impact on exactly how much of a benefit it would be in your situation.
Saves Money
Credit cards have notoriously high interest rates and fees. The average interest rate for credit card accounts that were charged interest in 2017 is 14.44 % according to a report released by the Federal Reserve. Many people with less than stellar credit have cards with much higher interest rates than that, even. This leaves people paying a small fortune to retain the privilege of owing the banks that own their credit card debt.
There are much lower interest rates available for personal loans, especially if you have a decent credit rating. A small personal loan with a lower interest rate than your credit cards could leave you with lower monthly payments.
If you have several small credit card accounts, like store cards, that have fees associated with them and very high interest rates, this could be an ideal way for you to save a little money.
Less Bills to Remember
If you’ve ever paid a late fee simply because you forgot to send off a payment, you hate the hassle that comes with paying several credit card bills, or you just really dread paying a ton of bills every month, this one is likely a big boon for you. When you consolidate credit cards into a small personal loan, you cut down the number of bills that you must pay each month.
Less Potential for Late Payments
When you only have one bill to pay instead of several, there is less room for late payments. Each and every late payment not only likely costs you a hefty late fee; it could also cost you points off your credit score. Each late payment hits your report hard, and if you only have one payment to make rather than several, even if you slip up or fall on hard times and don’t make your payment on time, it won’t have such an impact on your FICO score.
Opens Up Revolving Credit
Using a small personal loan to consolidate your credit card debt can provide you with more room between your credit card balances and limits. While you obviously still must pay back that debt, now you owe it in the form of an installment loan rather than through a revolving line of credit.
You might be wondering why that makes any different at all. The answer lies in your credit score. When your credit card debts are close to the limits of how much your credit card companies will allow you to borrow from them, your credit utilization rate is very high. Credit utilization rate is responsible for up to 30% of your credit score, depending on which agency’s score you’re looking at. By paying down your credit card debt, your credit utilization rate goes down, and a new installment loan likely won’t hurt your credit score as bad as a high credit utilization rate. This make these easy loans a quick way to clean up your credit score a bit.
Gets Rid of Debt Faster
When you’re paying less each month for your overall debt because you chose to apply for a loan online and got a better interest rate, you have more money to apply to your loan balance, which means you can pay off your debt quicker. This is a sort of twist on what is referred to as the snowball effect.
Understanding the Snowball Effect
The snowball effect is a very popular system used to eliminate personal debt. The point of the system is that you pay down your lowest outstanding balances first, or you start hacking at your balances with the highest interest rates. Then, once you’ve paid off the lowest balance or highest interest rate account, apply the payment you were making towards that balance to the next smallest balance or highest interest rate so that you pay it off even faster. You continue to do this until all your personal debt is gone and you no longer owe anyone money.
How Debt Consolidation with a Small Personal Loan Can Grow Your Snowball Faster
When you save money and are therefore able to pay more than the minimum payment on a small personal loan, you’re able to pay off your debts quicker. The key to making this method work for you, whether you’re doing it the old-fashioned way and paying down each credit card balance individually or taking out an easy loan to move the process along even faster, is discipline. You’ve got to apply the extra money towards your current snowballing balance for it to work.
Is Consolidating Credit Card Debt with a Personal Loan A Good Idea for You?
Whether this is an idea that could revolutionize your financial future or not depends on a lot of factors. To get started, go ahead and check out your credit score and calculate your debt-to-income ratio right here on the site.
You’ll need to determine if the loan terms you can get with your credit score and earning power will be able to save you money, and the totally free Loans Now Discovery Process is a perfect way to do that without hurting your credit score, before you even apply for a loan online. After you answer a few questions, a Loans Now team member will work to find you the best possible terms, and all the information you provide will never be shared. With interest rates as low as 4.99%, you could save big!