When does credit card debt consolidation make the most sense?

A debt consolidation loan can be an effective tool in helping you pay off high interest debt, but it’s not for everyone. Make sure you weigh the pros and cons and consider alternative strategies. (iStock)

A debt consolidation loan is a borrowing tool that allows you to combine existing unsecured debt into one personal loan. This type of loan can help you pay off your debts by lowering your interest rate and consolidating several monthly payments into one.

A debt consolidation loan can be an effective tool, but it is not for all situations. Keep reading to find out when a debt consolidation loan might be a good idea, along with some alternatives that you can consider as well.

To start exploring your personal loan options, visit Credible to compare rates and lenders.


Can Debt Consolidation Affect My Credit?

Before taking out a personal loan, it is important to consider the potential impact on your credit score, as there could be both positive and negative effects.

First, a personal loan can increase your credit rating by decreasing your credit usage and diversifying your credit mix. But it can also hurt your score by creating a thorough investigation of your credit report and reducing the average length of your credit history.

You can visit Credible to check your credit score without affecting it negatively.


When should I use the debt snowball or debt avalanche methods?

Two popular debt repayment strategies are Debt Snowball and Debt Avalanche methods. Debt avalanche involves making the minimum payment on all your debts except the one with the smallest balance. Any extra money you can spend on debt goes to the smaller one. This strategy helps create quick wins that keep you motivated.

An avalanche of debt is similar, except that instead of prioritizing debt with the smallest balance, you prioritize the one with the highest interest rate. This strategy saves you the most money on interest.

Both snowball and avalanche methods can be great strategies to help you pay off your debt. The downside is that unlike a debt consolidation loan, you don’t lower your interest rate. Instead, you can use one of these strategies at the same time as another, such as a personal loan.

Should I consider refinancing with a credit card instead?

Credit card refinancing, also known as a balance transfer, involves transferring your credit card debt from one card to another. Many credit card companies have offers where you will pay only 0% on your balance transfer for the first 12-18 months. As a result, your monthly payments go entirely to your balance rather than being eaten away by interest.

Refinancing with a credit card is best suited for someone who can pay off the entire balance during the 0% introductory period. Otherwise, you could end up paying high interest rates.

To search for a balance transfer card, visit an online marketplace like Credible to view several 0% credit card options at once.


Can You Benefit From A Better Interest Rate On A Debt Consolidation Loan?

The advantage of consolidating your debt into a personal loan is that you can often reduce the number of monthly payments you make and, more importantly, lower your interest rate. After all, credit cards have noticeably high interest rates, which can slow down your debt repayment.

Before taking out a personal loan, make sure you qualify for a lower interest rate. The good news is that personal loan rates often start at less than 5%, but the best rates are only available to those with a good credit rating. With bad credit, your personal loan rate could be close to or even higher than your credit card rate.

To find out what personal loan rate you may qualify for, visit Credible to get prequalified without affecting your credit score.


Make a plan to avoid getting into debt

Whether you are using a debt consolidation loan, a balance transfer, the snowball method, or some other strategy to settle your debt, it is essential that you have a plan.

Unfortunately, many people use one of the tools available to consolidate their credit card debt, only to find themselves in debt quickly. Before you take steps to consolidate your debt, make a commitment to yourself not only to pay off the debt, but also to avoid incurring unnecessary additional debt.

And after?

There are many strategies that can help you lower your interest rate and pay off your debt faster, including a personal loan. Visit Credible to connect with experienced loan officers and get your personal loan questions answered.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

About Joan Ferguson

Check Also

Paying Off Credit Card Debt With Help From Student Loan Forgiveness

I was a senior in high school and preparing to attend the University of Texas …

Leave a Reply

Your email address will not be published.