Credit card debt can take a toll on a household’s finances and can be difficult to pay off due to high interest rates. Plus, it can cost you thousands of dollars in interest charges over time to pay off $20,000 in credit card debt if you only make the minimum payments.
One way to save money and get rid of high-interest credit card debt faster is to consolidate your balances into a personal loan with a lower interest rate. The analysis below shows how some borrowers can save thousands of dollars using this debt repayment strategy.
Keep reading to learn more about paying off $20,000 in credit card balances with a personal loan. You can start the application process by comparing personal loan rates on Credible for free without affecting your credit score.
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Personal loan borrowers can save thousands by paying off $20,000 in credit cards
Compared to credit cards, personal loans can offer more competitive rates. The average credit card interest rate was 16.44% in the fourth quarter of 2021, according to the Federal Reserve, compared to the average two-year personal loan rate of 9.09%, an all-time low for the product. Three- and five-year personal loan interest rates are also much lower in 2022 than they were a year ago.
Personal loans offer fast, lump-sum financing that is repaid over a set period of time at a fixed interest rate. Because they have set repayment terms, you’ll know exactly when your debt will be paid off. On the other hand, making the minimum payment on your credit cards can take much longer to be paid back because interest is variable and accrues daily.
Credit card issuers require borrowers to make a minimum monthly payment on their debt which is usually between 2% and 4% of the total balance due, Experian Reports. This means it could take over 22 years to pay off $20,000 in debt by making the minimum credit card payment.
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Paying off $20,000 in credit card balances with a personal loan has the potential to save borrowers between $9,000 and $15,000 in interest charges over time, while paying off debt years faster.
By choosing a two-year loan term, well-qualified applicants can potentially save $14,613 while getting out of debt two decades faster. A five-year loan term has the potential to save borrowers $145 on their monthly payments and $9,252 in interest costs over the repayment period.
Using a personal loan calculator can help you estimate your monthly payment and potential savings with credit card consolidation. You can learn more about this type of debt consolidation loan by visiting Credible.
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How to consolidate credit card debt into a personal loan
Opening a personal loan to pay off credit cards is a simple process that can be done entirely online. Here’s how to apply for a personal debt consolidation loan:
Learn more about each step of the application process in the sections below.
Check your credit score
Personal lenders set rates based on the loan amount and repayment term, as well as the creditworthiness of the applicant. Borrowers with a good credit score and a low the debt-to-income ratio (DTI) will qualify for the lowest possible rates on a personal loan.
On the other hand, applicants with fair credit generally see higher interest rates, which can make debt consolidation more expensive. Some lenders have minimum credit score requirements, so borrowers with bad credit may not qualify at all.
Before applying for a personal loan, check your credit score and get a free copy of your credit report from all three credit bureaus: Equifax, Experian, and TransUnion. If you have a credit score below 720, you may need to look for ways to improve your credit score before consolidating your debts with a personal loan.
One way to keep tabs on your progress is to sign up for free credit monitoring services on Credible.
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Compare rates between lenders
Personal loan rates may vary from one lender to another, since each lender has its own eligibility requirements. Checking the rates of several personal lenders can help you make sure find the lowest possible rate for your financial situation.
Most lenders allow you to prequalify to see your personal loan’s estimated interest rate with a soft credit check, which won’t affect your credit score. You can be prequalified with multiple lenders at once in Credible’s personal loan marketplace.
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Formally apply for the loan
Once you have found the personal loan offer that suits you best, you will need to formally request it from the lender. This requires a firm credit investigation, which will have a minimal and temporary impact impact on your credit score. You will need a number of documents for the official application, including pay stubs, bank statements and identity verification.
If approved, funding can be deposited directly into your bank account the next business day. You can use the personal loan to pay off your credit card balance down to zero. Make sure you don’t rack up more credit card debt while you pay off your loan, so you can begin your journey to debt freedom.
You can browse the current personal loan rates from lenders in the table below. Then visit Credible to begin the personal loan application process.
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