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Curious about credit card consolidation loans? Read on to find out what these are and the best lenders to help you reach your financial goals. (iStock)
If you have high-interest credit card debt and are having trouble keeping track of when all your different payments are due, you might be considering a credit card consolidation loan. You might also consider consolidation as a way to lower the total interest costs of your debt.
When you take out a credit card consolidation loan — which is a personal loan that you use to pay off existing credit card debt — you’re left with a single loan, ideally with a lower interest rate. People choose these types of loans because they may save money and find it easier to keep on top of payments.
You can use Credible to compare personal loan rates from multiple lenders in minutes.
What is a credit card consolidation loan?
A credit card consolidation loan is a type of personal loan that you take out to pay off your existing credit card debt. You’ll then start making monthly payments on the new loan.
Generally, you can use any personal loan to consolidate other debts, although some lenders offer personal loans specifically intended for debt consolidation.
Why use a personal loan to pay off credit card debt?
Consolidating your credit card debt allows you to simplify your repayment plan because you’ll only have one loan to keep up with.
Credit card consolidation loans may also help you save money, since many personal loan rates tend to be lower compared to credit cards. Depending on what you qualify for, you could save hundreds — or even thousands — of dollars in interest. The average credit card interest rate is around 16%, versus 9.41% for personal loans, according to Experian data.
When you apply for a personal loan, your application will be evaluated based on factors such as your credit score, employment history, debt-to-income-ratio, income, loan amount, and loan term. Once approved, your lender will send you the loan funds, which you’ll use to pay off your credit card balances. Some lenders also offer the option to pay off your credit card balances directly.
Standard repayment terms for personal loans typically range from 12 to 60 months, though some lenders may offer longer repayment terms.