Credit Card Consolidation Calculator
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Escape High-Interest Debt
High-interest credit card debt can feel like a trap, with a large portion of your monthly payment going straight to interest instead of paying down your balance. A debt consolidation loan is a strategy to break this cycle. By taking out a single, fixed-rate personal loan, you can pay off all your credit card balances at once. If you qualify for a lower interest rate on the new loan, you can save a substantial amount of money and become debt-free faster.
Benefits of Consolidation
- Lower Interest Rate: The primary goal is to secure a rate lower than the average of your credit cards, saving you money.
- Single, Fixed Payment: Consolidating simplifies your finances by replacing multiple due dates with one predictable monthly payment.
- Clear Payoff Date: Unlike credit cards, a personal loan has a fixed term, so you’ll know exactly when you will be debt-free.
Frequently Asked Questions (FAQ)
How does credit card consolidation work?
Credit card consolidation involves taking out a new, single personal loan to pay off all of your existing credit card balances. The goal is to secure a new loan with a lower interest rate than the average rate of your credit cards. This results in a single, fixed monthly payment and can save you a significant amount of money on interest.
Will consolidating my credit card debt hurt my credit score?
There can be a short-term impact. Applying for the new loan will result in a hard inquiry, which can temporarily dip your score. However, in the long term, consolidation can actually help your credit score. It can lower your credit utilization ratio (the amount of available credit you’re using) and makes it easier to manage payments, reducing the risk of missed payments.
What is a good interest rate for a debt consolidation loan?
A ‘good’ rate is any rate that is significantly lower than the average interest rate of the debts you are consolidating. People with excellent credit scores can often qualify for rates under 10%, while average rates may be in the 10-20% range. The key is that the new rate should provide you with tangible savings compared to your high-interest credit cards.
Are there alternatives to a consolidation loan?
Yes. Another popular method is a balance transfer credit card. These cards often offer a 0% introductory APR for a period of 12 to 21 months. This allows you to transfer your existing balances and pay them off interest-free during the promotional period. However, they often have balance transfer fees and are best for people who are confident they can pay off the debt before the high standard APR kicks in.