Do you have multiple higher-interest debts such as credit cards or store cards? Maybe you tried the debt-snowball method once, but lost your way over time. Does it feel like you don’t have any money because it’s harder and harder these days to get by on your current income?
If so, there may be an easy way to give yourself a budget boost without taking on a second job, and the best part is that you’re the one with budget control.
(Note: video transcript can be found at the bottom of this article)
Plan a Strategy to Consolidate and Pay Off Credit Card Debt
Consolidating your existing credit card debt could be the key to having more money in your pocket. Sound hard to believe? If so, you could be in for a big (and sweet) surprise.
Credit card debt consolidation is a great strategy that could help you achieve budget control, saving more by paying less interest every month.
Here are 3 steps to paying off your higher interest credit cards by using this consolidation strategy:
Step 1: Get a good grip on the dollar impact of credit card debt.
You may have heard many financial experts recommend that you should get out of credit card debt to start getting better with money. But you may be wondering … just how much it could cost you to carry that debt?
Here’s an example:
- Let’s say you have $15,000 of credit card debt.
- Let’s say your interest rate is 15%.
- Let’s also say you pay $359 each month toward that debt (slightly more than the minimum payment required each month).
- YOUR TOTAL INTEREST CHARGES would be $6,349 by the time you paid off your $15,000 of credit card debt. And that assumes you didn’t make any new purchases.
You can estimate your savings on interest and monthly payments using our debt consolidation calculator. Got the picture? You’re ready for Step 2.
Step 2: Explore your options to get out of credit card debt.
Now that you’ve sized-up the problem, let’s see what solutions are available and determine which one offers you the best path to get out of credit card debt and achieve budget control.
One option is to increase the amount you pay each month. The upside: You’ll pay off your credit card debt sooner which means you’ll pay less in total interest. What’s the downside? You’ll be paying a higher payment every month and a bigger bill might feel tight in your monthly budget.
Another option is to go the “balance transfer” route.
Here, you pay off one credit card with another credit card that has a lower interest rate. The upside: You’ll save on interest charges, assuming you don’t add more debt, of course. What’s the downside? Many balance transfer offers have an up-front fee that could reduce the money you would save from a lower interest rate.
Also, be aware that those very low or 0% rates are often introductory rates that expire and are replaced by the higher standard rates.
Finally, some credit cards that come with balance transfer offers also come with an annual fee that can also reduce your overall savings.
Are there any other smart options?
Here’s a popular one: Personal loans for credit card debt consolidation.
The upside: When you pay off credit card debt with a personal loan, you can lock in a fixed rate (one that doesn’t rise) and fixed monthly payment (one that doesn’t change month-to-month).
Plus, using a single personal loan to consolidate multiple debts, you’ll downsize and simplify your monthly bill paying.
And if you get a personal loan with a fixed interest rate that is lower than your credit card interest rate, you could immediately save money in interest every month. What’s the downside? Some personal loans have fees up front, such as application and closing fees. Some may also have prepayment penalties if you pay off the loan early.
Step 3: Compare when you’re shopping personal loans for credit card debt consolidation.
If you’re thinking about using a personal loan to get out of credit card debt, it’s important to be a smart shopper.
See if a personal loan is right for you by reviewing these 5 important items: interest rate, fixed payment, choice of loan length, no application or closing fees, and no prepayment penalty.
- Shop for a rate that’s lower than what you’re paying currently on your highest credit card debt. Keep in mind that some lenders may offer low rates but have high fees.
- Look for a fixed rate instead of a variable rate, so that you have the same payment every month. This makes monthly bill-paying easier. (As a contrast, a “secured loan” like a home equity line of credit can have a variable interest rate – it’s not predictable and could go higher.)
- Seek a choice in loan length (“term”), such as 36 – 84 months. That way, you can set up your personal loan to have a monthly payment amount that works with your budget.
- Steer clear of loans if that have added costs like application, origination, or closing fees. (While some lenders may have multiple fees of this type, Discover is one lender that offers personal loans with none of these fees.)
- Make sure there’s no prepayment penalty so you’re able to pay off your loan at any time you like, without a fee for paying it off early.
The bottom line here is gaining more budget control while paying down your higher-interest credit card debt. Ready to check your rate on a personal loan today? Get started with our application.
So why would you use a personal loan for credit card debt consolidation?
Well, for starters, your personal loan rate may be lower than your credit card rate.
Also when you have multiple credit card debts at different sizes, growing at different interest rates, keeping up may be hard. And paying down debt even harder.
A personal loan allows you to consolidate these credit debts into one potentially lower rate loan to let you focus on just one payment. And commit to paying off the loan in a fixed time frame.
With a personal loan, you have a fixed monthly payment that you can budget for.
And you may also lower your interest rate and save money.
Personal loans make sense for debts up to around $30,000, with terms ranging from around 3 to 7 years.
So if you’re considering debt consolidation, and think a personal loan might be right for you, visit discover.com/personal-loans to learn more.