If you’re one of the millions of Americans struggling with credit card debt, you know how stressful and confusing it can be to keep track of all the payment dates, the variable interest rates and how long that 0% APR offer (which sounded so good at the time) is going to last. When you factor in things like interest payments and penalties, it can be hard to wrap your head around the actual amount of money you owe.
As of 2017, the average adult credit card holder in the U.S. has $5,284 in credit card debt, so we’re not talking about a small amount of money. Though the number of consumers who have credit card debt is decreasing, the amount of debt they carry over each month is increasing dramatically.
You need solutions to pay off your credit as quickly and easily as possible, and the best one is a credit card debt consolidation loan. Debt consolidation is a popular way to get a handle on your debt and start bringing it down and debt consolidation loans is the most popular vehicle for consolidating your debt.
What are credit card debt consolidation loans?
Credit card debt consolidation loans are a form of unsecured cash loans that allow borrowers to pay off their outstanding credit card, moving it all into one account, so they only have one payment to make. In most cases, the debt consolidation loans have a lower interest rate than the credit cards, so you are given the opportunity to save considerable amounts of money in the process of paying off their debt, and simplify your finances by only having to make one payment each month.
What makes the best credit card debt consolidation loan
The point of a credit card debt consolidation loan is to move all of your consumer debt to a single lender and, ideally, pay a lower interest rate on the money you owe.
“Beware of loans with extremely high interest rates, as these can keep you paying off fees instead of the principal amount,” says Michael Millington, a financial writer at Lamil Media. “While these loans may be easier to get [especially if you have subpar credit], they don’t work in your best interest if you can’t make large payments in a short amount of time. To the same point, avoid quick cash loans [like cash advances or payday loans] as they will have extremely high interest rates that could potentially keep you in a cycle of debt.”
But interest rates aren’t the only factor you should take into account.
“Investigate the total cost of the loan not just the monthly payment. Meaning, a loan with a longer term and lower payment each month may cost you more in the long run,” says David Bakke of Money Crashers.
“You should really compare loans from at least three different companies in order to make the best choice. Interest rates, terms, and fees do vary.”
How to identify the best credit card debt consolidation loan
Is the interest rate fixed or variable?
Beyond the actual interest rate, look at whether the rate is fixed or variable. In many cases, the credit card interest rate is variable, while a good consolidation loan will be fixed.
Kerri Moriarty of Cinch Financial says the fixed interest rate gives you “more control over planning how long it will take you to pay off your debt and how much additional money you’ll spend on interest.”
Is there a penalty for early payoff or making higher payments?
“Another good feature to include is an early prepayment option,” Millington says, which would save you money by focusing your payments on the principle debt and away from interest or fee payments.
One of the most empowering things you can do to pay off your debt is to do so as fast as possible, without having to pay penalties or additional fees to offset the lender’s loss of interest revenue.
“Without that flexibility, you could be forced to keep paying interest on a debt you could pay in full when something in your life changes, like a new job with higher pay or other debts are paid off,” adds Moriarty.
How much can you afford to pay each month?
Once you take out a credit card debt consolidation loan, the monthly payment will be substantially higher than just the minimum payments required on each card. This is because you’re committing to pay off the loan — not just the interest.
“Once you have that number, stay focused on that when comparing loan options and use it to solve for the loan option that gets you out of debt the fastest,” says Moriarty. “Some loans may have a lower interest rate and monthly payment, but extend the time you’ll be in debt [and paying interest] by years. It may be tempting to keep a low payment, but the overall impact on your financial standing isn’t worth it.”
How to find the best credit card consolidation loan
With these tips in mind and the knowledge of how much you can afford to pay each month, it’s time to apply for the loan.
“Don’t be afraid to explore alternative lenders,” Moriarty says. “It’s a whole new world and there are more options than just your traditional bank. Companies like SoFi, Upstart, and many others offer alternative lending services that could be significantly more competitive than traditional channels.”
Are you wondering which lender will offer you the best rate but you don’t want to fill in dozens of applications or get multiple hits on your credit score? Try SuperMoney’s loan offer engine and find out which lender offers you the best rate without hurting your credit score. It only takes a few minutes, and it’s completely free.