Credit Card Consolidation Loans
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How to Consolidate Credit Card Debt Using a Personal Loan
Credit cards can be an excellent way to gain rewards for your purchases, spread the cost of emergencies, and protect yourself from fraud, but at times we can find ourselves carrying credit card debt and struggling to pay it down. When this is the case, credit card consolidation is often the best option to ensure you pay off the debt quickly with a lower interest rate and avoid financial difficulties.
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What is credit card consolidation?
Credit card consolidation is where you find a new form of borrowing and use it to pay off all (or many of) your outstanding credit card debts. For example, if you had $8,000 in credit card debt, you may get an $8,000 personal loan and use it to pay off the credit card debt on your cards.
How does credit card consolidation work?
Credit cards typically have high interest rates compared to other forms of borrowing - around 16-24% is generally a good rate on a credit card. In general, credit cards are best used for monthly spending that is paid off at the end of each month or to cover a short-term emergency that you can pay off within 3-6 months. When you start carrying debt on your credit card for a long time, or for a high amount, the interest rate can make it difficult to get out of debt in a timely manner.
So, instead of struggling against the growing interest to pay off the debt, you can consolidate the debt with another financial product with a better interest rate. This lower rate will allow you to pay off the debt at a lower cost and not struggle against the compounding interest to become debt-free.
Companies that offer credit card consolidation loans
Some of the best companies that offer credit card consolidation loans are:
Avant: borrow $2,000 - $35,000 at 9.95% - 35.99% over 2-5 years (minimum credit score of 550)
✔ Minimum Credit Score: 550
✔ APR: 9.95 - 35.95%
✔ Loan term: 2 - 5 years
✔ Funding turnaround: within 24 hours in most cases
With Avant personal loans, borrowers with fair to good credit scores can get access to super fast funding up to $35K. Best for debt consolidation.
Best Egg: borrow $5,000 - $35,000 at 4.99% - 35.99% over 2-5 years (minimum score of 600)
✔ Minimum Credit Score: 640
✔ APR: 5.99 - 29.99%
✔ Loan term: 3 - 5 years
✔ Funding turnaround: 1 - 3 business days
With Best Egg personal loans, borrowers with fair to good credit can get funding for 3-5 years and have the option to use the loan for a variety of purposes.
Discover: borrow $2,500 - $35,000 at 5.99% - 24.99% over 3-7 years (minimum score 660)
✔ Minimum Credit Score: 660
✔ APR: 5.99% - 24.99%
✔ Loan term: 3 - 7 years
✔ Funding turnaround: within 24 hours
With Discover personal loans, borrowers can apply up to $35K in funding as fast as next business day. Best for those who want to consolidate debt and have a good credit score.
Payoff: borrow $5,000 - $40,000 at 5.99% - 24.99% (minimum credit score 600)
SoFi: borrow $5,000 - $100,000 at 4.99% - 19.63% (minimum credit score 680)
✔ Minimum Credit Score: 680
✔ APR: 4.99% to 19.53%
✔ Loan term: 2 - 7 years
✔ Funding turnaround: 1 - 3 business days
With SoFi personal loans, borrowers can get access to up to $100,000 with APR starting as low as 4.99% with extra bonus perks ($500 for each funded loan) and fast turnaround time. 24/7 customer support available.
Why should you consider consolidating credit card debt?
Consolidating credit card debt is nearly always a good idea - the only time it wouldn’t be is if your interest rate on your credit card(s) is lower than what you can get with another financial product. We’ll explore the different options available to you shortly. Some of the reasons people choose to consolidate credit card debt are:
- To pay a lower interest rate (and thus total cost) for their debt
- To refinance a large purchase or bill they had to make quickly (such as paying for car repairs or healthcare)
- To make it easier to become debt-free
- To roll their debt into a personal loan which will be paid off via fixed monthly installments, instead of left in their hands to pay off
- To avoid an increase in interest rate after an introductory period on a credit card
How to Consolidate Credit Card Debt
Personal loans are the most common form of debt consolidation, but there are other options. Here are the different debt consolidation options you should consider:
- Personal Loans: This is the most popular option because personal loans often have low interest rates and they ensure you pay off the debt over a fixed term. Credit cards require you to pay a minimum monthly payment but it will typically take an extremely long time (think the length of a mortgage) to pay off credit card debt by minimum monthly payment alone. That means it’s up to you to make bigger payments to pay it off. A personal loan has the benefit of making you pay off the debt without thought - as long as you pay the monthly payment, you’ll pay off the debt within the fixed term of the loan.A personal loan is essentially a lump sum amount you borrow from a lender you can use for any purpose, including debt consolidation, and pay back with a fixed monthly payment over a fixed term, typically 3-5 years for debt consolidation purposes.
- Balance Transfer Credit Cards: Another option is to use a balance transfer credit card. These cards are credit cards with an introductory offer that gives you a low (typically 0% - 5%) interest rate for a fixed period, generally 3-21 months, depending on your creditworthiness. This is a good option if you have a smaller balance you want to pay off relatively quickly (less than 12 months) and want to avoid paying a lot of interest as you do so, especially if you have a high credit score. If you have a large balance or a mediocre credit score, this won’t be the best option for you.
- HELOC: A Home Equity Line of Credit is another option, though should really only be considered if you have no other options and you’ll struggle to make more than the minimum payment on your credit cards. This is where you gain access to a line of credit (much like what you have with your credit cards) but it is secured by the value of your home. This allows you to borrow as needed at a much lower interest rate, but you need to be careful, as defaulting will put your home at risk. If you consider going this route, have a strong plan in place for what you’ll do with your credit cards after the fact and how you plan to better manage your finances so it can’t happen again.
- 401(k) Loan: If you have a 401(k) plan that allows you to take out a loan, you can consider getting a loan from your own future finances rather than borrowing from a lender. 401(k)s tend to have strict rules around how you can do this and the timeframe in which you must pay it back, but if you can do so, they’re well worth considering.
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Pros & Cons of Consolidating Credit Card Debt
- You can cut down the amount of time it takes you to pay off the debt
- You can save money on the overall cost of the debt
- You can make paying off the debt more affordable on a month-to-month basis
- You can simplify your finances and not have to juggle multiple accounts
- Move a large unexpected debt to a more affordable financial product
- Have a fixed monthly payment that will pay off the debt in full
- Continue to have a good credit score, or better it, because you’re more likely to afford your debt
- It can act as a tourniquet for a much bigger spending problem, actually compounding your financial problems down the line
- Some fees can make the savings on interest not worth it
- If your credit score isn’t great, you may struggle to get a low enough rate to make it worth it
Can I get a personal loan for credit card consolidation?
Yes, provided you have a reasonable credit score you shouldn’t have a problem getting a personal loan for debt consolidation. How much you borrow and the terms you get will be down to your creditworthiness.
Can I consolidate credit card debt without hurting my credit?
Almost any form of debt consolidation will temporarily harm your credit score - any hard credit search (as is always necessary before you are given new credit) will cause a temporary dip. However, provided you make your repayments on time and do not start accumulating debt on your cards at a fast pace your credit score will recover quickly.
The one option that will not affect your credit score is to use a 401(k) loan, since you’re borrowing from yourself and so don’t need to be approved by a lender.
Can I get a credit card card consolidation loan with bad credit?
You may be able to, but you’ll need to consider seriously consider whether it’s a good idea to do so. If you can get a lower interest rate and will be strict about not using your credit card(s), then it can work. However, you’ll likely struggle to get a loan with a poor score.
What interest rate can I expect to pay on a credit card consolidation loan?
In general, you can expect to get a rate between 6% and 36%. The better your credit score, debt-to-income ratio, and other factors, the better you’ll get. In general, people with an excellent credit score will achieve around 11%, those with good credit around 15%, fair 20%, and bad 25%.
Credit Card Consolidation Personal Loan Calculator
The best way to find out if a personal loan is the right way to consolidate your credit card debt is to use our calculator below:
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What are the best types of credit card consolidation loans?
Generally, personal loans will be the best type of loan, or a 401(k) loan if you have access to one.
Credit Card Consolidation vs. Credit Card Refinancing
Credit card refinancing and credit card consolidation both have the same purpose: to make paying off your debt easier and more affordable. The only difference really is that credit card refinancing is more often used for one card carrying a large balance, and consolidation is used to pay off multiple cards.
What is the best way to consolidate credit card debt?
In general, the best way will be to get a personal loan with the lowest interest rate you can. This will allow you to pay off all (or most of) your cards and have one monthly payment in the form of a loan, so you know you’ll pay off the entire debt when by the end of the loan’s term. The key here is to make sure you don’t then use the cards for more debt - that can lead to serious financial difficulties.
How can I qualify for a credit card consolidation loan?
Requirements vary significantly from lender to lender, so be sure to do your research and find out what options are available to you in your circumstances. In general, you’ll have the best chances of getting a good rate if:
- You have a score over 600
- Your debt-to-income ratio is under 30%
- Your income is over $20,000 a year
Is credit card consolidation a good idea?
Provided you’re strict about your usage of those cards in the future, it is a good idea. It can help you get out of debt faster and avoid the stress of dividing your “extra” money between all the different cards you’re trying to pay off.
Compare credit card consolidation personal loans online
Now you know all the pros and cons of using a credit card consolidation loan, you can start comparing loans online. Start comparing the best credit card consolidation loans here and when you find the one that’s right for you and your circumstances, click apply. You’ll soon have the money you need to consolidate and simplify your debt.
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