Americans now owe $444 billion in credit card debt. Let’s break it down into a more personal number. Using 2019 data gleaned from the Federal Reserve, indebted US households carry an average of $6,849 in credit card debt. Yes, if you’re reading this article and you have credit card debt.
Credit card debt is arguably the nastiest type of debt you can carry. We’ll talk about getting out of debt in a second. But I first want to say… congratulations! Congratulations on facing your debt and actively looking for the fastest way to climb out of the hole.
Credit card debt is just like a deep, dark hole, isn’t it? If you’re stuck at the bottom of a hole, you want to get out the fastest way possible. What’s the fastest way to get out of the hole? You get someone to throw down one single rope. You focus on holding onto that rope. You climb. You’re eventually free.
Credit card debt is the hole and a credit card debt consolidation loan is the rope.
Debt consolidation can simplify the payoff process
Instead of paying off multiple cards with multiple interest rates and multiple billing dates, you can just focus on one payment. Not only that, but you would be smart to find a consolidation loan that offers a lower interest rate than the average of all your cards put together. Getting your interest rate down is key to fixing your situation.
How much do interest rates really matter?
I’ll do the math for you. Let’s say you have $20,000 in credit card debt. Let’s also assume the average interest rate you’re paying is 18%. If you’re able to pay back $500 per month, it will take you 5.1 years. Over the course of those 5.1 years, you will have paid $10,770 in interest alone
Yes, you will have paid over half of your balance over again in interest. Instead of paying $20,000, you will have really paid $30,770. I’m actually being pretty optimistic about this scenario.
Having multiple debts is a headache. Over these 5+ years, there’s a pretty good chance you may slip up and need to pay more interest than I’ve calculated. For instance, you may forget to make a payment for one month. Interest rates could rise. Managing high-interest credit card debt with multiple credit card companies is very, very tricky.
As you can see from above, interest matters.
I’ll run another illustration with the same hypothetical $20,000 credit card debt burden. Let’s say instead of paying 18% interest, you’re able to consolidate your loans and pay one company just 9.25% interest. Instead of spending 5.1 years paying off $20,000, you can now do it in 4.0 years. Instead of paying $30,770, you will only be required to pay $24,003! You will save $6,767 by consolidating your credit card debts into one manageable low-interest loan.
What is debt consolidation?
Why do I associate debt consolidation so closely with saving money? It’s because it’s the smartest way to pay off credit card debt. Basically, you’re spending less on the credit used so you’ve “saved” money.
Here’s how it works: instead of trying to lower your interest rates on cards individually, you simply take out one loan instead. The loan automatically pays off all your credit card debt. You now just have to pay off one loan.
The biggest problem consumers face is getting one of these loans through a traditional financial institution. As mentioned earlier, the average credit card debt per household is a little over $6,000. That’s more than many banks will cover for an unsecured loan. But I do suggest you reach out to your primary financial institution and see what they can offer.
Now it may be necessary to consider a loan through a private lender.
How to Consolidate Credit Card Payments into a Single Loan
You can check to see if you prequalify with some of the debt consolidation companies we’ve listed in the financial marketplace. I recommend reading further below of companies we’re highlighting that allow you to prequalify and check your rate without impacting your credit score.
Payoff Credit Card Consolidation Loan
A company called Payoff (how appropriate) is one of the leaders in this arena. They can help you get a loan even if your total debt is as high as $35,000! Even if a bank would consolidate on your behalf, Payoff may still be the best choice for you.
Payoff isn’t a direct lender. They work with banks and credit unions to help you specifically consolidate credit card balances. This is a great option for those with more than $10,000 in credit card balances. Checking your rate doesn’t impact your credit score so it doesn’t hurt to see you if prequalify.
The application process is simple with no fees or fine print. Check your rate in 2 minutes with Payoff >>>
What if I’m not approved? It’s true. Payoff cannot accept everyone. If you’re not approved, Payoff still wants to help you. If denied, Payoff offers tools, in-depth training, and expert tips for managing debt, saving money, and improving your score. You’re also invited to apply for a Payoff loan again soon.
Tally Credit Card Manager with Artificial Intelligence
Tally helps people with credit card payments by offering a free credit card management tool. The tool aggregates all your credit cards and allows you to view rates, balances, minimum payments due all in one place. The AI will also recommend extra payment amounts to help you pay off debt faster.
To get the best out of Tally, you can apply for the Line of Credit. The LOC is used to pay your minimum monthly payments so you only make one payment to Tally. Or you can use the credit to pay off your cards entirely like a debt consolidation loan.
Get started with Tally’s free credit card manager tool by downloading the app. Get started with Tally >>>
Final Thoughts
Credit card debt is the nastiest type of debt. It’s smart to get rid of it as quickly and efficiently as possible. If you only have one card with a low-interest rate, we encourage you to pay it off as quickly as possible. For that, you don’t need to consolidate. You’ll be out of debt soon enough. But if you have many cards… see about consolidating them into a single easy to manage consolidation loan. Want more ideas to get rid of credit card debt? Click here to read the Debt Freedom guide and find alternative debt consolidation loans in the marketplace.
