Credit card debt keeps many Americans from achieving financial goals. High interest rates inherent with most cards make it difficult for many to reach debt freedom. Worse yet, the average credit card indebtedness per American is $6,455, according to TransUnion. Fortunately, there are resources to help Americans struggling with credit card debt. In some cases, a personal loan is a wise choice to attack high-interest debt. Here are top reasons why a loan can help you reach debt freedom.
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Credit cards are notorious for high interest rates, making it difficult to attack the principal of the debt. The current average interest rate on credit cards is 21.37%, according to the Federal Reserve Bank of St. Louis.
Compare that to the current average loan interest rate of 11.66% and it’s easy to see how a personal loan can dramatically reduce interest. Americans with a credit score of at least 670 can often qualify for competitive rates on a loan.
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Making headway on principal is vital to knocking down credit card debt. Lower interest rates directly influence payments, allowing you to secure a lower monthly payment.
If you’re struggling to make minimum payments, a personal loan can provide relief. Not only can it provide a known payoff date, but it can lower payments. If possible, pay more than the minimum on the loan as it will help you achieve debt freedom quicker.
Managing multiple credit cards can make it difficult to keep your finances in check. Each card will likely have its respective payment date or interest rate, making it challenging to get ahead.
Combining multiple credit cards into one personal loan may simplify tackling debt. Instead of multiple payment dates, you get one with a set interest rate, allowing you to focus all efforts on repaying the debt.
The credit score system isn’t perfect, but there are clear ways to improve your score. One of those ways is reducing the amount owed on credit cards. Paying off card balances reduces your credit utilization ratio, which is the second biggest component of a credit score.
Yes, the indebtedness shifts to a personal loan. However, consistent payments on that plus decreasing your utilization ratio can boost a credit score in relatively short order.
