Personal loans, also known as personal installment loans, are an option some people use to wipe out credit card debt. Although they don’t get rid of the debt, you can transfer several card balances to one new loan and potentially save money on interest over time.
Here are three reasons to consolidate credit card debt with a personal installment loan:
1. Get a fixed interest rate and monthly payment
Credit card interest rates can increase due to missed payments, a drop in credit score or variable interest rates.1 Monthly payment amounts can also fluctuate as the outstanding balance increases or decreases.
Some personal loans, however, offer fixed interest rates and monthly payment amounts that are locked in for the life of the loan. This could save you money on interest if you make your payments on time and make it easier to budget the payment month after month.
2. Keep your spending in check
If you’re struggling to stay within your budget, consolidating credit card debt can help put an end to the cycle. By paying down your balances, or paying them off completely, you can hit the RESTART button and plan to spend more responsibly.
For more tips on creating good spending habits, check out the following blogs:
- How to Stick to a Budget: 5 Tips to Make It Happen
- 5 Tips to Help Prevent Overspending
- How to Develop a Good Money Habit
3. Know the date your loan will be paid off
A unique benefit of personal installment loans is there's an end in sight. Unlike credit cards, personal installment loans are amortized over a fixed period of time. This means you pay one fixed amount, plus interest, in regular installments over time like with a mortgage or car loan.2
So, if you take a personal installment loan with a 5-year-term, you’ll know the exact date that your loan is paid in full. Each on-time payment is one step closer to a zero balance!
The choice is yours
Personal installment loans can wipe out several credit card balances and help consolidate your debt. If you make timely payments and act responsibly, they could save you money and be an effective way of digging your way out of credit card debt.
1. Konsko, Lindsay. “5 Times Your Credit Card Issuer Can Raise Your Interest Rate.” NerdWallet.com https://www.nerdwallet.com/blog/credit-cards/credit-card-issuer-raising-interest-rate-5-times/ (accessed October 15, 2018).
2. Investopedia. “Amortization.” Investopedia.com> https://www.investopedia.com/terms/a/amortization.asp (accessed October 15, 2018).
*This article has been updated from its original posting on February 16, 2015.
Lisa Weinberger contributed to this article.