With the rise of interest rates and the economy sitting upon a house of cards, people are worried about how their credit card debt may affect them in the future. Debt consolidation is often a solution to place debt from multiple lines of credit into a single installment loan. However, is this the best solution for consolidating debt?
Consumers often use a debt consolidation loan to aggregate and take all of their credit cards or revolving credit debt and put it into a single, easy-to-manage loan. This makes it easier to manage as the consumer no longer has to worry about multiple lines of credit and when to pay them off each month.
This is great for people who may have accrued many small credit cards and filled them up to the limit. Debt consolidation loans buy off all of that debt, and the borrower can then pay off the loan itself at a fixed or variable interest rate. An additional benefit besides having all debt put into a single account is that these loans offer a lower interest rate than a credit card, allowing the borrower to save money over time.
For example, let’s say Mary has three lines of credit and total debt of $10,000 between all three credit cards. To pay back the $10,000, she has two choices, pay back the money through the credit card companies or consolidate the debt into a single loan. Her average interest rate for her multiple credit cards is 21.40% (the average for new cards as of August 2022). The average interest rate for a debt consolidation loan is dependent on a person’s credit score, so Mary gets a decent rate of 15.4% with an average credit score of 700. Let’s also give Mary five years to pay off the debt.
| Pay Credit Card Debt Directly | Debt Consolidation Loan | |
| Total Debt: | $10,000 | $10,000 |
| Interest Rate: | 21.40% | 15.40% |
| Monthly Payments: | $272.79 | $240.00 |
| Total Interest Paid: | $6,367.31 | $4,400.25 |
| Total Money Paid Back: | $16,367.31 | $14,400.25 |
Looking at the breakdown above, Mary can save $1967.06 over five years.
Now, all of this varies from borrower to borrower, and the number one factor is the person’s credit score. A good or bad credit score can determine the interest rate the lender will set for the borrower. If the borrower has a great credit score, then a debt consolidation loan may be the best option; however, a borrower with an abysmal credit score may not receive a good offer for a debt consolidation loan and it may not be beneficial at all.
Depending on the credit card rate and the current loan rate, it may depend. For example, if a borrower has a credit line that is old and has a decent interest rate but now has a bad credit score, the borrower may want to stick to paying the credit card companies back directly. A credit score of 500 has an average interest rate of 25%, which may be higher than a credit card’s interest rate. So it’s important to look at the two rates and compare which one will be better to pay back.
There is also another option for people looking to consolidate their credit card debt. A balance transfer card is usually offered by credit card companies as a kind of promotion. Most of these cards have 0% APR for a set amount of time, usually between 12-24 months, depending on the promotion and company.
If you believe that you can pay off the debt within the set amount of time or close to it, it might be a good idea to do a balance transfer as no interest will accrue during the promotional period. However, if you delay paying back the full debt, the interest will kick in after the promotion period.
The borrower’s credit score will determine the decision on whether or not to get a debt consolidation loan. A good credit score will leave the borrower with far more options compared to someone with a poor credit score.
If you believe that you have a low credit score, you should pull your credit report and examine what exactly is giving you a bad score. Contact us at Fix Your Credit Consulting for a FREE consultation. Call (877) 212-2450 for more information. We will be more than happy to answer any questions you may have about your credit history and score.
We also invite you to click on the following link to Interest: Starting a Company? Open a Line of Business Credit
We also invite you to click on the following link to see our reviews on yelp.
Ok so I've been holding off writing this review for about 7 months. And as you can see by the 5 stars I left I'm beyond happy with the services this company provided me. I was skeptical at 1st even though they had stellar reviews (which is why I chose them) but there's always that thing in the back of my mind of "well they probably won't be able to help me though, I will be that exception they cant fix". Needless to say they absolutely crushed getting EVERY collection I had off my report!!! I had about 5 grand worth of stuff on there that they managed to make disappear like magic. My credit has shot up over 150 points! I cannot say enough good things about them. I even referred my coworker to them after and they sent me a $50 referral check back! If you're looking to clean up your credit, don't wait, call these superstars and get on your way to feeling confident about your credit again. I feel like a huge weight has been lifted off my shoulders and I'm so grateful. Thank you fix your credit!!!
I worked with Mia and Said for over a year, I believe. They were beneficial and responsive. Although we were not successful with all of my accounts, they still helped me raise my credit by about 100 points. So I stand satisfied. I recommend them. Not to mention there prices are very competitive. Thank you all.
I called this place about 3 months when I decided it was time to fix my credit. I spoke with Mia, she walked me thought the whole process in a 5 minute phone conversation. It was simple enough so I decided to pull the trigger and signed up. Its only been 3 months and already they have removed negative items and improved my score significantly. I strongly recommend to give them a call as soon as possible, I waited too long and I wish I would have called sooner. I will update in a few months with the final results.
These guys are legit and professional at what they do and very quick as well very responsive and knowledgeable and they will do everything they can on your behalf
ASK FOR MIA SHE IS THE BEST.
