Taking out a loan to pay off credit card debt may help you pay off debt faster and at a lower interest rate. But you might only qualify for a low interest rate if your credit health is good.
In this manner, what is the best loan to get to pay off credit cards?
If you’re struggling to afford credit card payments, taking out a personal loan with a lower interest rate and using it to pay off the credit card balance in full may be a good option. A debt consolidation loan with a low interest rate could mean owing less per month, which can help you make loan payments on time.
Additionally, do debt consolidation loans hurt your credit?
Debt consolidation — combining multiple debt balances into one new loan — is likely to raise your credit scores over the long term if you use it to pay off debt. But it’s possible you’ll see a decline in your credit scores at first. That can be OK, as long as you make payments on time and don’t rack up more debt.]
What is the smartest way to consolidate debt?
The smartest strategy to pay off credit card debt is through credit card consolidation. When you consolidate credit card debt, you combine your existing credit card debt into a single loan with a lower interest rate. With a lower interest rate, you can save money each month and pay off debt faster.
The average credit card debt of U.S. families is $6,270, according to the most recent data from the Federal Reserve’s Survey of Consumer Finances. This information comes from data collected through 2019, representing the most reliable measure of credit card indebtedness in the U.S.
It’s best to pay off your highest interest rate debts first. Even if you think you have a high rate on your credit card, payday loans are still worse. The interest on a payday loan can translate to an APR of 390% and sometimes as high as 600%.
Best debt consolidation loan rates in May 2021
|Lender||Est. APR||Best for|
|Payoff||5.99%–24.99%||Consolidating credit card debt|
|LightStream||5.95%–19.99% (with autopay)||High-dollar loans and longer repayment terms|
|PenFed||Starting at 5.99%||Smaller loans with a credit union|
|OneMain Financial||18%–35.99%||Fair to poor credit|
Select’s picks for the top personal loans to refinance your credit card debt
- Best overall: SoFi Personal Loans.
- Best for good to excellent credit: LightStream Personal Loans.
- Best for fair/average credit: Upstart.
- Best for paying creditors directly: Marcus by Goldman Sachs Personal Loans.
Taking out a personal loan to consolidate debt can sometimes make debt repayment easier and cheaper. That’s because a consolidated loan may have a lower interest rate than the combined rates on the individual loans you owed. You can consolidate all different kinds of debt using a personal loan.
Using a personal loan to pay off revolving credit, such as credit card debt, can help you improve your credit scores by replacing revolving debt (which factors into your credit utilization ratio) with an installment loan (which doesn’t).
In order to qualify for an SBA loan, any credit card debt that’s to be refinanced must also: Have been used for only business purposes. There cannot be any personal charges incurred on the credit card to be refinanced by the SBA 7(a) loan.
To qualify for a debt consolidation loan, you‘ll have to meet the lender’s minimum requirement. This is often in the mid-600 range, although some bad-credit lenders may accept scores as low as 580. Many banks offer free tools that allow you to check and monitor your credit score.