Are you paying your credit card bills every month, but you can’t seem to pay down the balances as quickly as you’d like? You’re not alone.
The average U.S. household has more than $15,000 in credit card debt1. That’s a lot of money sitting on cards that may have high interest rates, plus a variety of due dates that can be tricky to pay off.
If you’re struggling with credit card debt or are looking to pay it off faster, a personal loan can be a great solution because they may offer lower interest rates, finite repayment terms and sometimes a lower monthly payment.
One of the easiest ways to see the money math at work is to use a Debt Consolidation Calculator, which shows you how, through a personal loan, you can pay off existing balances – sometimes quicker and with less interest than if you were to pay each bill individually. And who doesn’t like the prospect of saving time and money?
Let’s look at the benefits you may see with a personal loan and get an idea of what you might save.
3 Ways to Reduce Interest Rates
Credit cards can have higher rates and many may significantly increase your interest rate if you miss a payment. Last year, the average penalty interest rate of a credit card with a payment 60 days late was 28.45%2, according to a CreditCards.com survey. That increased rate can lead to hundreds of extra dollars in interest payments each year.
There are three reasons why using a personal loan can be a smart way to pay off debt by combining all of your balances from higher-interest rate credit cards into a single bill.
- You can pay off your credit card balances with a personal loan that may carry a lower interest rate.
- A lower interest rate could save you money by lowering your monthly payment.
- You could also continue to pay the same amount every month and potentially pay down your personal loan faster.
It’s important to remember that you shouldn’t consolidate unless the personal loan provides you with a lower annual percentage rate.
A Sample Savings
It can be hard to keep up with bills, especially if you have multiple credit cards that each have a different payment due date. Consolidating all of those balances into a single payment can help alleviate the burden of debt, and maybe quicker than you think.
It is often easier for most of us to focus on paying a single bill and it’s easier to control the rest of your budget with just that single deduction from your checking account. Some personal loan providers, like Discover Personal Loans, allow you to set the date of your monthly payment, which allows you to pay on a day that’s convenient for you.
If you’re considering paying off your credit card balances with a personal loan, using a tool like a Debt Consolidation Calculator can help you compare the total costs of your debts against the cost of a consolidation loan. For example, let’s consider paying off three credit cards with relatively higher APRs and medium-sized balances and monthly payments amounts:
Let’s break the math down a little further. A Discover Personal Loan has an APR between 6.99% and 24.99%.
If you receive a loan at the lowest interest rate of 6.99% and keep your monthly payment at $600, you may see:
- Balances paid off 13 months faster: 33 months instead of 46.
- Total interest paid would reduce to $865, an estimated savings of $8,275.
Figure 1: Savings based on sample calculator at 6.99% APR.
Start a Savings Conversation
It’s great that you want to take control of your finances. Researching information to understand your best options is a good first step to becoming debt-free.
Every day thousands of Americans like you decide that paying off their credit cards with a personal loan is a great financial move. Using a personal loan to consolidate debt may help you save money and help you pay off your balances faster. In addition, personal loans are unsecured so you don’t risk putting your home or other assets up as collateral. If you decide a personal loan is right for you, consider a trusted lender. Discover Personal Loans is a great place to start.
1. “American Household Credit Card Debt Statistics: 2014”, NerdWallet.com, 12/14/2014
2. “2014 CreditCards.com Penalty Rate Survey: The price of being late”, CreditCards.com, 11/9/2014