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How to lower your credit card payments by consolidating them into a personal loan

Personal loans offer a way to pay off credit card debt at a fixed interest rate and a low monthly payment. (iStock)

Making minimum payments on your credit cards can be an expensive way to get out of debt, and it’s even more frustrating when even minimum payments are unaffordable. Since credit card interest accrues daily, it can take years to pay off your balances, even if you don’t miss any payments.

Fortunately, there are faster (and cheaper) ways to pay off credit card debt, like credit card consolidation loans. It is a type of personal loan that you repay in fixed monthly installments at a lower interest rate. Consolidating into a new loan can even help you pay less than the minimum credit card payment, while getting out of debt faster and saving money over time.

Keep reading to find out how to lower your credit card payments by using a personal loan. You can visit Credible to compare personal loan rates for free without affecting your credit score.

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Personal loans can help lower your credit card payments

Credit card companies may allow you to borrow money up to a certain limit while making a low minimum payment, sometimes just $25 or a small percentage of the total balance. But the more debt you have, the higher your minimum payment will be and the longer it will take you to pay off your balances.

For example, if you have credit card debt of $10,000, your monthly payment could reach $400, or 4% of the total balance. Since the average credit card rate is 16.44%, according to the Federal Reserveit will take more than 12 years to pay off the debt with interest and fees.

It may be possible to lower your monthly payment and pay off years of debt faster by consolidating your personal loan. This is because interest rates are much lower for personal loans than for credit cards. Plus, personal loan rates are fixed for the entire term, which means interest doesn’t accrue daily.

Pay off credit card debt with a monthly savings personal loan

Paying off $10,000 in credit card debt with a 3-year personal loan can potentially lower your monthly payment by $76 per month. By refinancing a 5-year personal loan, you can save $172 per month compared to the minimum credit card payment.

Since you’re paying off debt years faster, you can save even more money in interest charges over the life of the loan. Interest rates are lower for short-term loans, which means you could save almost $3,500 over time by choosing a 3-year loan term rather than making the payment minimum by credit card. But even if you choose the 5-year personal loan term with a lower monthly payment, you can still save around $1,400 while you pay off your debt.

You can visit Credible to see the personal loan rates right for you with a soft credit check and use a personal loan calculator to estimate your new monthly payments.

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How to Use a Personal Loan for Credit Card Debt Consolidation

Paying off high-interest credit card balances with a personal loan is relatively simple, and it can be done entirely online without leaving the comfort of your home. Here’s what the five-step process looks like:

  1. Determine how much you need to borrow
  2. Check your credit score
  3. Choose a loan term
  4. Compare personal loan rates
  5. Formally apply for the loan

Learn more about each step in the sections below:

1. Determine how much you need to borrow

You can consolidate the balances of one or more credit cards into a personal loan. Add up your credit card balances to determine the amount of personal loan you need to borrow.

Be careful not to borrow too much, or you’ll pay interest on money you don’t need to pay off your credit card debt.

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2. Check your credit score

Since personal loans are unsecured and do not require collateral, lenders determine your eligibility and interest rate based on your creditworthiness. This includes your credit score and the debt-to-income ratio, which is the amount of your debt repayments divided by your monthly income.

Applicants with very good or excellent credit, as defined by the FICO scoring model than 740 or more, will qualify for the lowest personal loan rates available. On the other hand, borrowers with bad credit will find it difficult to qualify for a personal loan with good terms.

Personal loan rate by credit score

Knowing your credit score can help you determine if you are a good candidate for credit card consolidation. You can check your credit score and sign up for free credit monitoring on Credible.

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3. Choose a loan term

Shorter loan repayment terms generally offer lower interest rates, but they will come with higher monthly payments. But because you’re paying off your debt faster, you’ll save more in interest charges over the life of the loan.

Longer loan terms can help lower your monthly payments, but may come with higher interest rates. This can increase the overall cost of borrowing for the loan, although it might be worth it if your goal is to lower your credit card payments.

For example, well-qualified borrowers who used Credible to prequalify for a 3-year personal loan saw an average rate of 10.33% during the week of February 7. Average 5-year fixed rate personal loan rates were 13.17% during this time.

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4. Compare personal loan rates

Most online lenders allows you to be prequalified to see your estimated personal loan rates and repayment terms. Prequalification requires a soft credit check, and it won’t hurt your credit score.

You can compare credit card consolidation loan rates between multiple lenders at once on Credible.

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5. Formally apply for the loan

Once you have chosen the personal loan offer that suits your needs, you will need to complete an official personal loan application through the lender. This requires a apply for firm credit, which will temporarily lower your credit score.

If you are approved, personal loan funds can be deposited directly into your checking account the next business day. You can then use the money to pay down your credit card balance to zero. Be careful not to accumulate new credit card debt while paying off your personal loan.

You can browse the personal loan rates in the table below and visit Credible to learn more about your debt consolidation options.

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