When you’re juggling a lot of debt, especially credit card debt, it can be hard to figure out how to pay it all down and improve your financial health. A Debt Consolidation Loan might be the solution to relieve the overall burden and stress of your debt.
Debt consolidation means combining multiple debts into one loan. Instead of paying many different bills each month, you pay just one. This loan usually comes with a lower interest rate, helping you save money.
Here’s what the data says about people facing debt problems:
| Average Amount per U.S. Household | Amount |
|---|---|
| Credit Cards | $8,437 |
| Personal Loans | $13,021 |
| Auto Loans | $22,612 |
| Student Loans | $32,051 |
Managing multiple debts can be stressful, especially when each one has a different interest rate and due date. Debt consolidation makes it easier to keep track of payments and could save you money over time.
The goal with consolidation is to trade the high interest rate you’re currently paying for a lower rate with the new loan. Rates vary depending on your credit score, the loan amount and term length, but a consolidation loan is likely to get you a lower rate than you pay on your credit card.
As such, Debt Consolidation Loans are often a great option for high-interest credit card debt – you’ll save on interest over the life of the loan, and your rate will stay the same the entire time! Be sure to comparison shop to make sure you’re getting the lowest rate possible.
These tables illustrate the potential annual savings from consolidating debt by comparing the current interest costs on a $20,000 balance with a lower consolidation rate of 10%. The first table shows the impact on credit card debt with a 27% rate, while the second table highlights the savings for a personal loan with an 18% rate.
Credit Card Debt at 27%:
| Debt Type | Original Rate | Annual Interest Cost | Consolidation Rate | Annual Interest Cost at 10% | Annual Savings |
|---|---|---|---|---|---|
| Credit Card | 27% | $20,000 × 27% = $5,400 | 10% | $20,000 × 10% = $2,000 | $5,400 - $2,000 = $3,400 |
Personal Loan at 18%:
| Debt Type | Original Rate | Annual Interest Cost | Consolidation Rate | Annual Interest Cost at 10% | Annual Savings |
|---|---|---|---|---|---|
| Personal Loan | 18% | $20,000 × 18% = $3,600 | 10% | $20,000 × 10% = $2,000 | $3,600 - $2,000 = $1,600 |
There’s peace of mind knowing only one bill will be due each month. You won’t have to manage multiple due dates, and you won’t have to worry about which debts to prioritize. Plus, you’ll be paying the same amount each month, making it a lot easier to budget for your bill!
When you combine debts, you typically get a lower monthly payment.
Example:
| Type | Balance | Interest Rate | Monthly Payment |
|---|---|---|---|
| Credit Card A | $4,000 | 18% | $100 |
| Credit Card B | $3,500 | 20% | $90 |
| Personal Loan | $2,500 | 15% | $60 |
| Total | $10,000 | $250 |
After consolidation into a single loan:
| Consolidated Loan | Balance | Interest Rate | Monthly Payment |
|---|---|---|---|
| New Loan | $10,000 | 10% | $180 |
By consolidating your loans and reducing high-interest payments, you can simplify your finances and save more each month. Monthly Savings = $70