Getting yourself into credit card debt is pretty simple: You spend more money on your credit cards than you currently have in pocket and repeat until you’ve maxed out your spending limit. Now, it’s the getting yourself out of credit card debt that is a bit more complicated. While you have quite a few options, none of them are easy.
One of the ways you could pay off that debt is to consolidate all those cards into a single debt: a personal installment loan. You would then use that loan to pay off all your credit cards, leaving you with only one easy payment to make each month rather than multiple. Sounds great, right? Let’s discover if this is the best option for you.
Is An Installment Loan Going To Save Me Money?
Yes, paying off your credit cards with an installment will almost definitely save you money in the long haul. This is because the standard term for a personal installment loan is anywhere between one and five years. And regardless of how long the loan’s repayment term is, it’s almost guaranteed to be shorter than the length of time it would take you to pay off your credit cards making only the minimum payments.
How Does the Interest Rate Affect Me?
Interest rates for both personal loans and credit cards will vary depending on your credit score. If your credit is good, you most likely will be able to qualify for a personal loan at a decent interest rate.
With that, the interest rates for personal loans are generally lower than the interest rates for credit cards. So you need to take into account that even if the rate is higher than you might prefer, it’s probably going to be lower than the rate you’re paying on your credit card.
The problem is that racking up a lot of extra credit card debt is going to lower your credit score, as the amount of debt you owe is the second most important factor in your credit score. This decreases the chance that you’ll find an online loan or a loan from brick-and-mortar lender with a great rate.
It’s a bit of a Catch-22, right? You’re looking for a low-cost personal loan to pay down your credit card debt, but you need to pay down your credit card debt in order to qualify for the low-cost personal loan.
What are the monthly payments?
The monthly minimum payments for credit cards are very small. And while small and affordable, those payments make it much harder to get out of debt—especially relative to the amount of debt you owe in total.
This is where the biggest issue comes in to play with consolidating your debt through a personal installment loan: While you will get a lower interest rate, the shorter repayment terms almost guarantee that your monthly payment will be larger than the monthly minimums on your credit cards. And if you’re currently struggling to afford your monthly minimum payments, this could make consolidating the debt a non-starter for you. Saving money in the long run is desirable, but you still need to be able to make your payments now.
With that said, you’re going to pay more each month than you’re currently paying towards your monthly minimums in any debt repayment plan. Don’t let those larger payments discourage you: work your budget out to afford the payments, pick up a second job if needed and start chippin’ away at it.