Getting a personal loan from your local bank, credit union, or reputable online lender is one strategy for consolidating credit card debt.
For this strategy to work for you, you will most likely need good or excellent credit. The rates on personal loans are determined based on your credit score. Having great credit gets you the lowest interest rate on these loans. If you have poor credit, you may not be able to qualify for a loan.
Loan officers will look at your credit score, plus your income for the past couple of years as well as your debt-to-income ratio. And if any of these are deemed insufficient you may have a tough time qualifying for a loan with an affordable interest rate.
You can check two of your credit scores for free using the Credit Report Card, a free tool that updates your scores every month.
So begin by asking about credit scores needed to qualify for a personal loan from your bank or credit union. If you do happen to meet the other credit criteria for a personal loan, your previous accounts with a bank or credit union may qualify you for discounts on the interest rate on a personal loan.
Online lenders offer personal loans as well. But you will want to shop carefully. The Federal Trade Commission warns that some “lenders” are nothing more than advance-fee scam artists.
The Advantages of a Personal Loan
Once approved for a personal loan, you will be able to consolidate higher-interest credit card debt. You can pay off your credit cards using the money from the personal loan.
Personal loans charge simple interest and it’s much easier to make one loan payment per month instead of four or five or six credit card payments.
Personal loans typically have loan terms of three to five years so by consolidating your credit card debt into a personal loan, you’ll have a definite plan for paying off your old card debt. Just pay your loan as agreed and by the end of the term all your consolidated credit card debt will be paid in full.
Just make sure the loan payment amount is something that fits easily into your budget. Failing to pay a personal loan as agreed will hurt your credit. So stay on top of your loan payments and build up a solid payment history instead.