Why Now Might Be the Best Time for Credit Card Consolidation

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

Around 13.38% of Americans make only the minimum card payment per month; this is an expensive way to pay off your balances for high-interest credit cards as interest is accruing daily and you end up paying back more in the long term.

One way to consolidate credit card debt is by taking out a personal loan. This is a loan in which the borrower receives a lump-sum payment which they repay across fixed monthly installments at a lower interest rate.

As of now, personal loan rates are lower than they have ever been (Source: Finger Finance), meaning that paying off your credit card debt by taking out a personal loan can be a huge moneysaver for those looking to consolidate their credit card debt.

In Q4 of 2021, rates for personal loans were at an all time low; an average rate of 9.09% on a two-year personal loan (Federal Reserve). As a point of comparison, the average credit card rate was 16.44% during the same period.

Credit card balances soaring

The population seems to be becoming increasingly reliant on credit cards, with debts continuing to surge. According to the Federal Reserve Bank of New York, the outstanding credit card debt grew 6.5% in Q4 of last year. With these balances growing sky-high, now is a better time than ever to try and consolidate this debt at a lower interest rate.

It has been estimated that paying off $10,000 worth of credit card debt, with a personal loan at the current low rates, could save borrowers over $4,000 in interest rates compared to making minimum credit card payments. Not only that, they can pay back their debts faster.

Longer-term personal loans might result in higher interest rates, but they also may be a way for consumers to save money over time and reduce their monthly payments. Because personal loan interest rates are so much lower than those of credit cards at the moment, even longer term loans work out 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 (data from Fox Business). To pay off $10,000 worth of credit card debt with those loan terms works out as $174 cheaper per month and saves over $1,500 across the duration of the repayment period.

Consolidate credit card debt with a personal loan

Here is how you can apply for a personal loan in order 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 score is low you are at risk of higher interest rates.
2. Add up all your existing credit card balances – doing this will help you determine exactly how much you will need to borrow with your personal loan in order to repay your credit debt.
3. Compare and contrast your options – research different lenders to explore their loan terms, including estimated interest rates, in order to compare the different options available. The best personal loan will be the one with the lowest interest rate and the right loan amount and loan length for your needs.
4. Take out a loan to pay off your credit cards – once you have found the right loan for you, you can submit a formal application. If approved, you can usually receive the funds within one business day, straight into your bank account. Once received, you can use this balance to pay off your credit cards.

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