Consolidating all the credit cards into one installment loan will likely save your money, but it’ll probably result in higher monthly installments.
In the process of getting yourself into credit, debit is straightforward: You spend more on your credit cards than you have and then repeat until you’re at the limit. Finding a way to get yourself free out of credit card debt, However, getting out of debt is more difficult. There are a lot of options to choose from but none of them is straightforward.
One method to pay off the obligation is to combine all the cards into one single loan which is the personal installment loan. The loan is used to pay off all of your credit cards and leave you with just one simple payment to pay every month. What is the most effective method for you? Find out more here …
Here’s how installment loans work.
When you apply for a personal loan, it’s likely to be constructed to be an installment loan. This means you’ll pay off the loan through a set of regular, fixed installments. You’ll borrow a single amount, which you’ll pay back plus interest.
The rate of interest on the personal loan will vary depending on the credit score. The better you score, the better trustworthy you’ll appear to potential lenders and the lower the interest they’ll charge. A lower score means the riskier you’ll appear, and the higher fees they’ll charge you to make up for it.
The interest charged in installment loans is accrued over the duration. The longer the loan is in force, the more interest it accrues. But, this interest will be calculated on the principal balance and the amount you pay in interest will diminish in time.
Finally, installment loans are amortizing meaning that each payment you make will go towards both the principal and also the interest. The amount of each one is determined by the loan’s amortization plan and you can be sure that each timely payment will bring you one step closer to getting out of debt.
(For all the information about installment loans, check out the OppU Guide to Installment Loans here.)
Does the loan help make you more money?
This question is really easy to answer If you’re able to pay off your credit card with an installment can probably help you save money in the long term.
Let’s look at the reasons: The normal term for an individual installment loan is anywhere between one to five years. Whatever the loan’s repayment time frame is, it’s almost certain to be shorter than the amount of time it takes in order to settle your credit cards, making just the minimum amount of payments.
The minimum monthly payments required for credit cards are usually tiny, with each payment being just 1 to 3 percent of the sum due. If interest rates are taken into the equation, it may take more than 10 years to pay off the credit cards.
Keep in mind that the longer the credit or credit card has an outstanding balance the more you’ll have to pay for interest. In the end, however, the repayment that is shorter is always the one that can save you money in the end.
What is the interest rate?
As we’ve mentioned above the interest rates for personal loans as well as credit cards can differ based on your credit score. If you’ve got good credit, you’ll probably be able to get certain personal loans with the lowest interest rates.
In addition, the interest rates for personal loans tend to be less than those that are charged on credit cards. Even if the rate is more expensive than you might like, it’s likely to be less than the rate you pay on a credit card.
But, accruing lots of unpaid credit card debt will reduce your credit score, since the amount you have to pay is the second-most crucial factor in the calculation of your credit score. This reduces the chances that you’ll be able to get online loans or one from a brick-and-mortar lender that offers a good rate.
It’s sort of a Catch-22 situation: You’d like to get an affordable personal loan to pay down your credit card debt, however, you have to pay off all of the credit card debt to be eligible to receive the modest cost personal loan.
Which are the monthly installments?
It was mentioned previously that the minimum monthly payments of credit cards are extremely tiny. It’s a double-edged sword; those small payments make it much harder to get out of debt but it also means they’re fairly affordable–especially relative to the amount of debt you owe in total.
Here’s where we get to the most difficult issue when taking out the personal installment loan: Even with the lower interest rate these shorter repayment terms will almost ensure that your monthly payments will be higher than the minimum monthly payments on your credit cards.
If you’re having trouble making the minimum monthly payments and this is causing you to be in a position where consolidation could be not a viable option for you. Saving money over the long term is great, however, you’ll need to be in a position to be able to afford your monthly payments present.
The flip side is that any repayment plan for debt is likely to be a lot more expensive every month than what you’re paying for your monthly minimums. Don’t let these higher monthly costs discourage you from trimming your budget, and maybe take an additional job or side hustle and start working.
What are the other options for debt repayment?
Consolidating your credit cards onto a personal installment loan is a viable method of debt repayment–especially if you’ve got a decent credit score–but it’s far from the only method out there.
The two most well-known ways to pay off debt include those of the Debt Snowball or the Debt Avalanche. Both require you to put the entire amount of money for debt repayment towards one debt at a given time instead of spreading them out equally. The difference is in the way they decide which debts to pay first.
In the Debt Snowball method, you settle your debts with the lowest balance first before working towards the debt with the highest balance. It will cost you more money in the long run however, it will prioritize small victories in order to gain the motivation you need to continue.
It’s the Debt Avalanche, on the other hand, has its eye on the figures. It lets you rank your debts according to interest rate by paying off the highest interest debt first before gradually moving towards the debt that has the lowest interest rate. This will save you money when in comparison with Debt Snowball. Debt Snowball, but it may mean you have to wait a while until you get your first win in debt-payoff.
Additionally, you can move some of your credit card balances to other credit cards by taking advantage of the zero percent APR option. This offers you a zero-interest grace period however, it also comes with the chance of creating greater credit cards in debt when you started.