The average American credit card holder has more than $4,000 in credit card debt.
If that sounds like you (and you’re drowning in credit card bills), then it’s time to consider changing up your debt repayment plan. If you don’t, you could be stuck with credit card debt for years to come thanks to high interest rates and low minimum payments.
Credit card loans can help lower your interest rate and encourage you to pay down your debt faster. But they’re not the best choice for everyone, so it’s important to know what you’re applying for and whether it’s the right fit for your situation. Here’s how you can get started.
What are credit card loans?
A credit card loan, also known as a credit card consolidation loan, is a personal loan you can use to consolidate credit card debt. Unlike credit cards, credit card loans have a set loan term.
But depending on your creditworthiness, budget, and other options, credit card loans might not be the best choice for you. To help you decide, here are three questions to consider.
1. Can you qualify for a lower interest rate?
The average credit card APR is 16.15%, according to a November 2017 report from CreditCards.com. Here are a few companies that offer credit card loans with interest rates lower than that:
|Lender||Interest Rate||Minimum Credit Score||Minimum Annual Income|
|SoFi||6.26% – 14.87%||None||$50,000|
|Earnest||6.99% – 18.24%||660||None|
|Citizens Bank||5.99% – 18.99%||680||$24,000|
The fact that you meet the lender’s minimum credit score and income requirements doesn’t mean you’ll get a low interest rate, though. The better your credit history and income are, the lower your interest rate will be.
In some cases, it might be worth trying to get a co-signer on the loan to improve your chances of getting a lower interest rate. But if you can’t find a co-signer and don’t qualify for a better rate on your own, you won’t be better off with a credit card consolidation loan.
To help you see what your chances of getting a lower rate are, these and other lenders allow you to pre-qualify with a soft credit check, which won’t hurt your credit score.
You’ll get to see some preliminary offers based on that credit check, which can give you an estimated interest rate to work with.
2. Can you manage the new monthly payment?
Since credit card loans have a set repayment term, you might end up with a higher monthly payment than you’re comfortable with.
For example, say you have $10,000 in credit card debt with a 17.00% APR and your minimum monthly payment is $100. If you were to consolidate with a five-year credit card loan with a 10.00% APR, your monthly payment would be $212.
Calculate your monthly payment using Student Loan Hero’s monthly payment calculator.
If that amount fits in your budget, you’re in good shape. You’ll have a lower interest rate and a clear payoff date. If you can’t afford $212 per month, however, consolidating could put you in a position where you’d need even more debt to cover the shortfall.
3. Is a balance transfer better?
Credit card consolidation loans aren’t the only way to pay off credit card debt more efficiently. Depending on your credit situation, you might be able to pay off your credit cards with another credit card.
Say you can qualify for that card and the APR after the promotional period is 17.00%. Here’s how the math works out for your different options:
|Payoff Method||Monthly Payment||Payoff Period||Interest/Fees Paid|
|Original credit card||$100||Never*||N/A|
|Credit card consolidation loan||$212||60 months||$2,748**|
|Balance transfer card||$212||54 months||$1,433†|
|Balance transfer card||$476||21 months||$0†|
*The 17.00% APR on the card is high enough that you’ll never pay off the balance with just $100 per month.
**You might have to pay an origination fee on top of this amount. For loans that charge origination fees, they typically range from 1 percent to 6 percent of the loan amount.
†You might have to pay a balance transfer fee on top of this amount. For cards that charge balance transfer fees, they typically range from 2 percent to 5 percent of the transferred amount.
Whether you plan to pay off the balance transfer card by the end of the promotional period or stick with the same payment as the credit card loan, the math works out in your favor in this scenario.
But it won’t be the same in every situation, especially if you revert to making the minimum credit card payment. In other words, a balance transfer card requires more discipline.
If you think you might be tempted to cheat on your debt payoff plan by lowering your monthly payments down the road, use a credit card loan; the structured payment plan doesn’t give you an opportunity to cheat.
Avoid analysis paralysis when it comes to credit card loans
It’s not always easy to know whether credit card consolidation loans are right for you. You might get stuck on the math or second-guess your motivation to stick with the payoff plan. But it’s important to avoid putting off a decision.
Use an online credit card consolidation calculator and balance transfer calculator to see the numbers. Then, compare different balance transfer credit cards and credit card loans to see what kinds of offers you qualify for and which one works best for you.
Even if you don’t choose the option that makes the most sense financially, choosing an option that’ll save you money is a good start.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|5.99% – 24.99%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|