Credit Card Consolidation Loan
Let’s say that you have had some credit cards for awhile. You have built some hefty balances on the cards. You have been paying on them for awhile but the balances don’t seem to be getting any smaller. This might be the reason:
- You have the $10,000 in credit card debt at around a 29.99% interest. If you were making the minimum payments of $339 each month, it would take you 31 years to pay it off!
However, if you took those high interest rate credit cards and paid them off with a low interest rate (the current average for those with a good credit history is 8.99%) debt consolidation loan it would take you just five years to pay the $10,000 off. Plus your monthly payment would be $207.54 instead of $339.
That is why you might want to consider a debt consolidation loan for your credit cards.
The idea of a debt consolidation loan is to obtain a reduced interest rate on your debt, lower the monthly payment and use less money while paying the cards off quicker.
Debt Consolidation Loan Example
If you owe $10,000 spread out among four credit cards. The interest rates on the balances are 15.99%, 19.99%$, 29.99% and 21.99%. The idea would be to borrow $10,000 at a lower interest rate than what is on the credit cards.
Types of Credit Card Consolidation Loans
You can apply for a secured or unsecured loan.
- Secured Loan: This is where you put up personal assets, like your car, home or other asset, to guarantee the loan. Of course, if you miss payments, you could lose that asset. However, you will stand a better chance of getting approved for the credit card consolidation loan because you are pledging an asset as collateral.
- Unsecured Loan: An unsecured loan is where your credit worthiness, earning history and income are all that is needed to secure the loan. A good to excellent credit history is essential to get approved for one of these loans.
You can consolidate your debt using a home equity loan, or personal loans from banks, credit unions or savings and loan companies.
If you have trouble obtaining a loan you might get approved if you add a co-signer to the loan. If the co-signer has good credit it or has an asset to be pledged, you could get approved. The co-signer needs to be aware that they are responsible for the credit card consolidation loan if you renege on payments.