Credit card debt has a bad habit of sneaking up on you. A few charges to get you through some tough times, and then suddenly you are juggling multiple payments and feeling overwhelmed.
Your stress is real. Especially because now, credit card debt is more expensive than ever. Why? Interest rates have taken a big upswing in the past 18 months as the Fed hiked rates in an attempt to control inflation. Those central bank rate increases have pushed credit card interest rates skyward, making the average credit card interest rate an eye-popping 27.74% in 2023. Yikes!
Debt Consolidation: One Smart Solution
So it’s a one-two punch that’s putting the squeeze on consumers like you: prices on everything are climbing, and, at the same time, your credit card debt is getting more expensive.
It’s time to break the cycle. And a debt consolidation loan can be a smart way to handle your credit card debt. Here’s why:
Lower Interest Rates
Credit card debt often comes with high interest rates — especially right now — that can make it difficult to pay off the balance. Worse, your balances can increase exponentially if you are paying just minimum payments each month, running on a debt treadmill that is going nowhere.
Debt consolidation loans typically have lower interest rates than credit cards, which can help reduce the overall amount of interest you pay, making it significantly easier to pay down and pay off the debt.
Simplified Payments
Managing multiple credit card payments each month can be overwhelming, as you juggle payment dates, minimum payments and making sure you have enough to cover all your other bills. A debt consolidation loan allows you to combine all your debts into a single payment — that’s the "consolidation" part — making it way easier to stay on top of paying down your debt.
Fixed Repayment Terms
Credit card debt is a "revolving" debt, meaning the balance carries over from month to month and continues to accrue interest. But a debt consolidation loan has a fixed repayment term, meaning you know exactly when you will finish paying off the debt, and with a fixed monthly payment that doesn’t change.
Debt Consolidation Loan Challenges
Debt consolidation loans aren’t a one-size-fits-all solution, however. You need to consider the following factors when looking at debt consolidation loans:
The Interest Rate You Qualify For
Lenders tend to offer the lowest available interest rates to customers with "Very Good" or "Excellent" credit scores (meaning over 730), so you need to carefully review available interest rates to you and ensure that they are less than what you are currently paying.
The Monthly Payment
Debt consolidation loans can sometimes lead to lower monthly payments, if the term of the loan is long enough. But certain loans have shorter terms and the payments might not be less.
Financial Habits
If you continue spending on credit cards after you take out your debt consolidation loan, you will only be further adding to your debt. Having your credit cards paid off can sometimes invite a sense of “available money,” but it is critical to adopt habits of saving and spending where you do not go above what you can pay off each mother. Otherwise, you will find yourself in more debt later, with nowhere to go.
Debt Resolution Programs: Another Option to Pay Off Your Debt
Debt consolidation can be a great solution. The only way to know for sure if it can work for you is to learn what rates and terms you will qualify for for a debt consolidation loan.
If you find that the rates aren’t favorable for you, you can consider joining a Debt Resolution program, which offers another workable solution to get out of debt.
In a debt resolution program, experienced negotiators contact your creditors to settle your debt for less than what is owed (which explains why other familiar names for debt resolution programs are “debt negotiation”, “debt settlement”, “debt relief”, or “credit card modification” programs). This option is available to those who are struggling to pay their monthly bills and are experiencing other financial hardships. And your original debts can be reduced by between 23 and 57 percent, depending on your debt load and your creditor mix.
In either case, paying off debt requires a significant time commitment as well as the ability to make lifestyle changes that will keep you from adding more debt. The silver lining to paying off your debt is you will have learned budgeting and saving habits that can stay with you for life, ensuring your long-term financial stability — and a lot less stress.