Things You Need to Know About Credit Card Consolidation

The average American household credit card debt has increased more than 34% since around 2014. What often starts as one big purchase on a card, grows into multiple credit cards. Eventually, it can become difficult, if not impossible, to keep up with the minimum payments required each month.  

Credit card consolidation is one option to help people get their credit card debt under control in a few years. You take a personal loan, use the funds to pay off all your credit cards, then pay your loan for the number of months agreed upon.

Benefits of consolidating your debt

There are many reasons people decide to pay off their credit cards using a personal loan, such as:

1. The interest is typically lower. Most credit cards, especially store ones, have high-interest rates that seem to climb higher every year. A personal loan often has a lower interest rate, helping you save money when it comes to paying it off. 
2. Your balance won’t continue to grow. Even if you stop using your credit cards, your balance can grow with interest charges and annual fees, making it impossible to pay it off fully. When you get a loan, your payment schedule is set, and your balance will not grow. You can be sure that it will be paid off in the time frame agreed upon.
3. You have one payment. Juggling multiple payments is challenging. It’s inevitable that one gets missed (leading to late fees). Before you use a personal loan to pay off your credit card debt, you can go from multiple payment due dates to one, simplifying your finances. 

How to tell if a personal loan is the best option for you

Taking any loan is a big decision, and it can be a little overwhelming to try to decide if it is the right step for you to take. Consolidating your debt with a personal loan may be for you if:

1.   You have good credit. The rate of interest you will get on your loan is based upon your credit score. Before you take a loan, make sure the interest rate you’ll receive is less than what the credit card companies are charging.
2.   You are able to afford to take on new debt. Make sure the loan payments fit into your monthly budget. You don’t want to take the loan, only to find that you don’t have enough money to cover your expenses in addition to this payment. Make sure that your payment will be less than what you currently pay in credit card payments each month.
3.   You have a plan to avoid running up your balances again. Nobody indeed wants to be in this situation a second time. Before you take a loan to get out of credit card debt, make sure that you have a plan. It may be focused on saving, cutting other expenses, or even closing down your cards.

 Finding the right loan

If you’ve decided on credit card consolidation using a personal loan, the next step is finding a lender. When looking for a loan, shop around and compare interest rates. Knowing your credit score before you start this process can make it a little easier. 

Use online calculators or contact lenders to request calculations to be done for you. You should also read the contract carefully. What are their late or missed payment fees? Do they have an origination fee?  

Knowing all your options will help you make the best decision about a lender and start your journey to becoming credit card debt-free.