Why Now Might Be the Best Time for Credit Card Consolidation

With personal loan rates at record highs (with an average range of 9.09% on a two-year personal loan), credit card consolidation could be the most cost-effective option for many looking to manage their credit card debt.

About 13.38% of Americans make only the minimum card payment per month; this is an expensive way to pay off your high-interest credit card balances because interest accrues daily and you end up paying more in the long run.

One way to consolidate credit card debt is to take out a personal loan. It is a loan in which the borrower receives a lump sum payment which he repays in fixed monthly installments at a lower interest rate.

Right now, personal loan rates are lower than they’ve ever been (Source: Finger Finance), which means paying off your credit card debt by taking out a personal loan can be a huge money saver for those looking to consolidate their credit card debt.

In the fourth quarter of 2021, personal loan rates were at an all-time low; an average rate of 9.09% on a two-year personal loan (Federal Reserve). For comparison, the average credit card rate was 16.44% over the same period.

Skyrocketing credit card balances

The population seems to be becoming more and more dependent on credit cards, with debts continuing to rise. According to the Federal Reserve Bank of New York, outstanding credit card debt rose 6.5% in the fourth quarter of last year. With these balances skyrocketing, now is a better time than ever to try and consolidate that debt at a lower interest rate.

It has been estimated that paying off $10,000 in credit card debt, with a personal loan at today’s low rates, could save borrowers more than $4,000 in interest rates compared to minimum payments per credit card. Plus, they can pay off their debts faster.

Longer-term personal loans can carry higher interest rates, but they can also be a way for consumers to save money over time and lower their monthly payments. Because personal loan interest rates are so much lower than credit card interest rates right now, even longer term loans operate at a lower fixed monthly interest rate.

For example, an average fixed rate on a five-year personal loan in January of this year was 12.65% for well-qualified applicants (Fox Business data). Paying off $10,000 of credit card debt with these loan terms is $174 less per month and saves over $1,500 over the length of the repayment period.

Consolidate credit card debt with a personal loan

Here’s how you can apply for a personal loan to consolidate your credit card debt:

  1. Check your credit score – personal loans are unsecured and do not require collateral. This means that if your credit rating is low, you may see your interest rates go up.
  2. Add up all of your existing credit card balances – this will help you determine exactly how much you will need to borrow with your personal loan in order to pay off your credit debt.
  3. Compare and contrast your options – research different lenders to explore their loan terms, including estimated interest rates, to compare the different options available. The best personal loan will be the one with the lowest interest rate and the loan amount and term that suits your needs.
  4. Take out a loan to pay off your credit cards – once you’ve found the loan that’s right for you, you can submit a formal application. If your request is approved, you can usually receive the funds within one business day, directly to your bank account. Once received, you can use this balance to pay off your credit cards.

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