Tackle Your Credit Card Debt with a Personal Loan

May 9, 2024 by Chevron Federal Credit Union

In recent years, the average American's wallet has been weighed down by a growing burden: credit card debt. As of 2023, it averaged a hefty $6,501 according to Experian data.

This debt is more than a number — it’s a cycle of high interest and fluctuating payments that can seem impossible to break.

But what if there was a clear way out? Debt consolidation through a personal loan may help you reach a $0 balance. Here’s what you need to know.

H2: Why credit card debt is a hard cycle to break

Credit cards, while convenient, often come with a high annual percentage rate (APR). As of February 2024, the average credit card interest rate was 22.63% according to the Federal Reserve. If you only made the minimum payments on your credit card debt, it could take years to pay off your balance.

For example, if you were carrying the average credit card debt of $6,501, with an APR of 22.63% and making a $130 minimum monthly payment, it would take 154 months to hit a $0 balance. In that time, you’d pay $13,440 in interest.

H2: Using personal loans for debt consolidation

Consolidating your debts through personal loans offers a strategic approach to managing multiple debts by combining them into a single, more manageable loan with a potentially lower interest rate. Averaging 12.22% in April 2024,* personal loans provide a structured repayment plan. Here are some of the benefits:

  • Simplified debt management: A personal loan streamlines your debts into one easy-to-manage payment.
  • Lower interest rates: Personal loans typically offer lower interest rates compared to credit cards.
  • Fixed repayment term: Personal loans come with fixed repayment terms, often ranging from one to five years. This fixed timeline provides clarity and certainty, allowing you to budget effectively and plan for debt repayment.
  • Potential for savings: With a lower interest rate and a fixed repayment term, personal loan consolidation offers the potential for significant savings over time. By reducing the total interest paid and shortening the repayment period, borrowers can achieve financial freedom sooner and with less financial strain.

H2: Comparing monthly payments

With credit cards, your payments can change and often only slightly chip away at the principal. With a personal loan, however, your payment is fixed, often lower, and ensures you're consistently paying down debt.

For example, with a credit card, your monthly payment could be set at 2% of the overall debt. Initially, your minimum payment may be $130, but that amount could fluctuate or balloon over time as interest accumulates and adds to your overall debt.

If you were to consolidate that debt under a personal loan with a 12.22% APR and a 24-month term, your monthly payment would be approximately $307. Over the life of the loan, you would pay a total of about $7,361.

Escaping the minimum payment trap of credit cards is more than just wishful thinking; it's a move toward financial stability. Personal loans often offer a structured and less burdensome way to pay down debt, with the bonus of getting your personalized rate upfront — no surprises, no hidden fees, just a straightforward path to reducing your debt.

Ready to take the first step? Learn more about your options and apply today. Our quick and easy pre-approval process ensures you can make an informed decision with no impact on your credit score.

*Source: Bankrate.com


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