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Here's how paying off $10K in credit card debt with a personal loan could save you thousands

Credit card consolidation loans let you repay debt at a low, fixed rate

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Compared with credit cards, personal loans offer lower interest rates and more favorable repayment terms.  (iStock)

Credit card spending can be an expensive way to cover the cost of unexpected expenses, like car repairs and surprise medical bills, due to high interest rates. Consumers are likely to pay some of the highest interest rates on revolving credit card debt that's carried over from month to month. 

Of concern, Americans are becoming increasingly reliant on credit card debt in 2021 as revolving credit balances skyrocketed to pre-pandemic levels. But thankfully, it may be possible to pay off credit card debt faster using a personal loan — all while saving thousands of dollars in interest charges over time.

Keep reading to learn more about the benefits of consolidating credit card debt into a personal loan, and visit Credible to compare debt consolidation loan rates for free without impacting your credit score.

AVERAGE HOUSEHOLD PAYS $1K IN CREDIT CARD INTEREST AND FEES ANNUALLY

Credit card consolidation can save some borrowers $4K

Making the minimum payment on your credit cards can be an expensive way to repay high-interest debt. The average credit card interest rate is at 16.44%, according to the Federal Reserve, which is much higher than rates for other financial products like auto loans and mortgages. 

Consolidating credit card debt into a personal loan is one way to pay off debt faster and save money while doing so. That's because average personal loan rates are currently at record lows, Fed data shows — just 9.09% for the two-year loan term.

DEBT SNOWBALL METHOD VS. DEBT AVALANCHE

A credit card user who makes the minimum payment on $10,000 worth of credit card debt at a 16.44% rate will pay $5,000 in interest charges. It will take nearly 14 years of $400 monthly payments to get out of debt using this method.

This borrower has the potential to save thousands of dollars and pay off their debt 12 years faster by consolidating into a personal loan. Repaying $10,000 worth of credit card debt with a two-year personal loan at a 9.09% rate will save them more than $4,000 over time, while adding just $50 to their monthly payment.

To determine your potential savings, use a credit card minimum payment calculator. Then, use Credible's personal loan payment calculator to determine your new monthly payments and overall interest charges.

PERSONAL LOAN ORIGINATION FEES: ARE THEY WORTH THE COST?

How to pay off credit cards with a personal loan

It's relatively simple to consolidate credit card debt into a personal loan. The application process can be done completely online, so you can start saving money without leaving the comfort of your home. Here's what you'll need to do:

  • Determine how much you need to borrow. You can consolidate the balances of one or more credit cards into a personal loan, so add up the total debt across all the accounts you want to repay.
  • Check your credit score. Borrowers with very good to excellent credit scores, defined by the FICO model as 740 or above, will receive the lowest rates possible on a personal loan.
  • Compare personal loan rates. Most lenders let you get prequalified to see your estimated terms with a soft credit check, which won't affect your credit score.
  • Formally apply for the loan. This will require a hard credit inquiry, which will show up on your credit report with a minimal impact to your score.
  • Pay off your credit cards. Personal loan funding is fast, typically available on the next business day after loan approval. Use your loan funds to pay off your credit card balances to zero.

If you decide to consolidate credit card debt with a personal loan, it's important to spend wisely to avoid racking up more credit card debt while you repay your current debt. 

You can browse current personal loan interest rates in the table below, and visit Credible to compare rates across multiple lenders at once without impacting your credit score. Shopping around guarantees that you'll find the lowest rate possible for your financial situation.

HOW TO GET A BALANCE TRANSFER CREDIT CARD

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