Even Staff

2016-04-26

Using a Personal Loan to Consolidate Credit Card Debt

using-a-personal-loan-to-consolidate-credit-card-debt

Credit card debt: the great equalizer. Most people who are buried under credit card debt are in the same boat -- stressed, frustrated and looking for a way out. If you can barely make your minimum monthly payments, things may feel hopeless; but don't worry -- there's a solution that might work for you: get a credit card consolidation loan. Credit card consolidation involves getting a new loan -- at a better interest rate -- to pay down multiple credit cards more efficiently. People often consolidate by applying for a personal loan, but other consolidation strategies, like alternative loans, may better suit your needs.

 

Effective Consolidation Strategies

 

Credit card debt can build up for a lot of reasons. Wedding expenses, unexpected medical bills, or personal emergencies can leave you in a financial lurch -- or maybe you lost track of spending, and things just got out of hand. Bottom line? If you want to kill your credit cards once and for all without bankruptcy, and you can't pay them off on your own, debt consolidation is the way to go.

 

Strategies include:

 

  • Personal Loans: If you go this route, you will need to apply for a loan at a local credit union or bank. Alternatively, you might use an online lender. These are unsecured loans, however, and your credit worthiness will need to be high enough for approval. Not everyone will be able to get approved, and sometimes, the interest rates will be high.
  • Alternative Lending: Alternative loans, also called peer-to-peer loans, may be available if you're unable to secure a personal loan at good interest rate -- which is usually the case if you're overloaded with debt. Different internet-based services, for example, connect borrowers with individual investors interested in lending them money. Some say it's the solution of the future for people who are stuck in debt.
  • Balance Transfers: This involves opening an account with a new credit card that offers a balance transfer deal, which might be a 0% interest rate for a year on any transferred balances. This is a great way of getting your existing credit card debt under control so you can get a break from high interest rates. However, make sure you can pay off the debt before your 0% rate expires.
  • Home Equity Loans: If you own your home, you might be able to take out a line of credit against the equity. With a secured loan like this, the interest rates will probably be lower; however, if you fail to make your payments on this loan, your home could be taken away from you. This is very risky, so only choose this strategy if you are financially secure.

 

 

The best thing about these credit card debt consolidation strategies is that they can potentially help your credit rating, as you will be paying down your debt more efficiently, and you won't have all those maxed out credit cards anymore.

 

What to Consider When Choosing a Strategy

 

Ultimately, you should choose the most efficient strategy for which you qualify. When looking at your options, keep the following considerations in mind:

 

  • Keep It Simple: It is far easier to manage one debt payment each month rather than seven. If you're juggling a lot of cards, it's easy to misplace or forget a bill. Missed payments can rack up fees and more interest. The simpler your repayment strategy, the better your chances of following it through to completion.
  • Find the Lowest Interest Rates: You want a loan with a lower interest rate than your credit cards. This allows you to pay off your debt faster.
  • Make Sure It Works: It's tempting to jump into more debt before fully analyzing a strategy. Prior to taking out a loan, make sure you can meet the monthly payment obligations, and make sure you know the exact payoff date.

 

Before You Choose a Consolidation Loan

 

Before engaging on your consolidation loan strategy, these steps will help you decide if getting the loan is a better deal for you than keeping your cards:

  • Negotiate With Your Credit Card Company: Call your credit cards and ask for lower interest rates. If you've been a customer for a long time and you consistently pay your bills, there's a good chance they'll lower your rate. Don't give up with just one call! Try three or four times to see if you'll have better luck with a different representative.
  • How Long Would It Take Just to Pay Them Off? You need to know how long it would take to pay off your cards normally, if you consistently worked to make the highest payments you can reasonably afford. If you can reasonably pay them off within a six months to a year, it might be easier and less complicated simply to do so.

 

Consider Alternative Lending

 

If you're finding it difficult to secure a personal loan from a local bank or online lender at a fair interest rate, don't forget about alternative lending options. At Even Financial, we match people looking for alternative loans with lenders offering the best interest rates available. All it takes is a couple of clicks to see if you qualify.

Disclamer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. Although we promote products and services form our partners, our opinions are our own.

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Goldman Sachs-backed Even Financial, a digital matchmaker between banks and customers, just bought an insurance startup as life insurers are seeing policy applications boom

Even Financial has acquired LeapLife, a leading insurtech platform. The addition of LeapLife allows Even to immediately commence its insurance capabilities, aimed at simplifying and enhancing the way consumers search, compare, and get matched with insurance policies (LeapLife’s existing platform will continue to operate from leaplife.com). Business Insider wrote an article about it, interviewing our CEO and Founder Phill Rosen.

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