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Consumers in the United States have $13.51 trillion in debt. Unfortunately, a lot of that debt comes in the form of high-interest credit cards.
Many people choose to consolidate debt with personal loans. If you worry about your debt, consider these four reasons to consolidate with a personal loan.
High-interest credit card accounts can make it nearly impossible for you to eliminate debt. The average person with credit card debt owes $6,741. Credit card interest rates can fall anywhere between 10% and 35%. The average credit card interest rate is 19.24% for mid-2019.
Assuming that you have the average interest rate and credit card debt, you would spend about $3,800 in interest over 5 years.
Personal loans can have interest rates as low as 4.5%. If you qualify for a low interest rate, then you would spend about $800 in interest over 5 years. By consolidating your debt with a personal loan, you could save $3,000 in interest.
Lowering your interest rate by consolidating debt with a personal loan can also help you repay your balance sooner.
Assuming that you have the average $6,741 balance and 19.24% interest rate, it will take you more than 21 years to eliminate your debt (when you make minimum monthly payments of $110 per month).
After switching to a personal loan with a 4.5% interest rate, you can repay your entire debt within 5 years. It gets a lot easier to eliminate debt when you have a lower interest rate!
A lower interest rate could also mean that you lower your monthly payment. The best personal loan with a 4.5% rate will cost you $125.67 per month for 5 years.
If you have the average credit card interest rate, you can pay a minimum $110. Keep in mind, though, that the minimum payment will stretch out your debt over more than two decades of repayment. You have to pay at least twice the minimum before you can expect to repay your credit card debt within a decade.
By consolidating your high-interest debt with a personal loan, you save money and lower your monthly payments. Suddenly, you have a lot more money for your monthly budget.
It’s unlikely that your debt is in one account. If you have high-interest debt, then you probably have balances on several credit cards. You may also have vehicle loans, student loans, and other forms of debt.
Keeping up with so many monthly payments gets difficult. Unfortunately, missing one payment gives lenders a reason to increase your interest rate. After one mistake, your 19.24% credit card interest rate could balloon to 25% or higher.
Debt consolidation means that you only need to make one payment per month. In many cases, you can set up direct payments. Instead of writing a check or paying online, the monthly payment comes out of your checking account. You never have to think about it.
A personal loan won’t solve all of your debt problems immediately, but consolidating can help in several ways. Explore your personal loan options to find out how much money and time you can save by consolidating your debt. Start with our guide to the best online loan sites and see how much you could be saving.
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