Nerdwallet Debt Consolidation Loan vs Paying Off Credit Card Debt: A Comprehensive Guide

Debt consolidation loans can be a viable option for paying off credit card debt, but it's essential to understand the pros and cons before making a decision.

A debt consolidation loan can combine multiple credit card debts into one loan with a lower interest rate, making it easier to manage payments.

According to NerdWallet, the average credit card interest rate is around 17.5%, which can lead to a significant amount of interest paid over time.

By consolidating debt into a lower-interest loan, you can save money on interest and potentially pay off your debt faster.

However, debt consolidation loans often come with a longer repayment period, which may lead to paying more in interest overall.

For example, a $10,000 credit card balance with an 18% interest rate and a 5-year repayment term would result in paying over $5,000 in interest.

In contrast, a debt consolidation loan with a 6% interest rate and a 7-year repayment term would result in paying around $3,500 in interest.

Here's an interesting read: Pay off High Interest Credit Cards

Consolidating credit card debt will affect your credit in a few ways, with a small and temporary dip in your credit score after a hard credit inquiry.

Late payments can more seriously hurt your credit, so it’s essential to pay attention to due dates and make all payments on-time.

Many lenders offer automatic payments to help you stay on track.

You can use a debt consolidation loan to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans, and existing personal loans.

A balance transfer card works by letting you move high-interest credit card debt to the new credit card, but you can’t always transfer other types of debt.

To determine the best product, consider the type of debt you have and the flexibility you need.

Suggestion: Balance Transfer Credit Cards for Fair Credit

Consolidating credit card debt will affect your credit in a few ways, with a small dip in credit score due to a hard credit inquiry, but late payments can more seriously hurt your credit.

You can use debt consolidation to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans, and existing personal loans.

A credit card consolidation loan can save you money on interest and get you out of debt faster, as seen in an example where a $10,000 loan at 15% APR saved $2,841 on interest and got the borrower out of debt six months sooner.

This can be especially helpful if you have a large amount of debt spread across multiple credit cards, as it can save you thousands of dollars in interest and get you debt-free faster.

Credit card consolidation is when you use another credit product to pay off your credit card balances in one fell swoop, leaving you with only one payment on your new debt.

To make sense of consolidation, the new debt should have a lower annual percentage rate than your credit cards, which will save you money on interest.

You can apply that savings back to your debt, shortening the payoff period and getting you out of debt faster.

Debt consolidation and debt settlement are often used interchangeably, but they're not the same thing.

Consolidating credit card debt will affect your credit in a few ways, with a small dip in your credit score usually lasting just a few points and being temporary.

Late payments can more seriously hurt your credit, so paying attention to due dates and making all payments on-time is crucial.

Many lenders offer automatic payments to help you stay on track.

If you make payments on time and keep debt manageable in the future, the overall effect of consolidating credit card debt could be positive.

The amount of money you save with credit card debt consolidation will depend on the amount of debt you have and the consolidation option you choose.

For example, if you have $10,000 in credit card debt spread out across four different credit cards, each with an annual percentage rate of about 23%, it will take you four and a half years to be debt-free and cost you an extra $6,200 in interest.

Related reading: How to Make Credit Card Payments to Increase Credit Score

However, taking out a credit card consolidation loan for $10,000 at 15% APR can save you $2,841 on interest and get you out of debt six months sooner.

The type of debt you have may help you determine which product is the best fit, with some consolidation options being more flexible than others.

For example, a debt consolidation loan can be used to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans, and existing personal loans.

You can save a significant amount of money with credit card debt consolidation. In fact, consolidating your debt into a single loan can save you thousands of dollars in interest.

For example, if you have $10,000 in credit card debt spread across four different credit cards with 23% APR, it'll take you four and a half years to pay it off and cost you an extra $6,200 in interest.

On the other hand, taking out a credit card consolidation loan for $10,000 at 15% APR can save you $2,841 on interest and get you out of debt six months sooner.

Consolidating your debt can also simplify your finances and reduce stress. With a single loan to worry about, you'll have more time and money to focus on your financial goals.

You can pay off your debt faster when you consolidate it into a single loan. In the example mentioned earlier, consolidating your debt into a credit card consolidation loan at 15% APR can get you out of debt six months sooner.

When choosing a loan, it's essential to consider the type of debt you're trying to consolidate. A balance transfer card is best for high-interest credit card debt that can be paid off in under two years.

If you have large amounts and multiple types of debt, a debt consolidation loan is a better option. This can help simplify your payments and potentially save you money on interest.

Applying for a loan can be a straightforward process. You can apply for a credit card consolidation loan at your local credit union, bank, or through an online lender.

Online lenders offer fast debt consolidation loans, even for borrowers with imperfect credit. They also let you pre-qualify without affecting your credit score, which gives you a preview of the rate, loan amount, and term you may get once you formally apply.

Some lenders will discount the rate on a debt consolidation loan or send the loan funds directly to your creditors, simplifying the process. This can be a huge time-saver and help you stay organized.

You can use NerdWallet's debt consolidation calculator to enter all of your debts in one place, see typical rates from lenders, and calculate savings. This tool can help you make an informed decision about your loan options.

Keep in mind that fixed interest rates mean your monthly payment won't change, which can make budgeting easier.

Take a look at this: Coupon vs Interest Rate

Choosing a personal loan can be a daunting task, but with the right information, you can make an informed decision.

Consider your credit score, as it can affect the interest rate you qualify for. With good to excellent credit, you can get low APRs. However, if you have bad credit, it may be hard to get a low rate.

Think about the type of debt you're consolidating and how long it will take to pay off. If you have high-interest credit card debt that can be paid off in under two years, a balance transfer card might be a better option.

Look for lenders that offer special features for debt consolidation, such as direct payment to creditors or discounted rates.

Some personal loans may come with an origination fee, so be sure to factor that into your decision.

Consider using a debt consolidation calculator to get a clear picture of your options and potential savings.

A different take: Credit Union Personal Loan to Pay off Credit Cards

Here are some key factors to consider when choosing a personal loan:

Understanding the type of debt you have is crucial when deciding between a debt consolidation loan and paying off credit card debt directly. You can use a debt consolidation loan to pay off multiple types of unsecured debts.

A balance transfer card, on the other hand, is best for high-interest credit card debt, but it's not always possible to transfer other types of debt. This is a key consideration when choosing between a debt consolidation loan and a balance transfer card.

Worth a look: Advantages of Balance Transfer Credit Cards

You have different types of debt, and understanding which one you have can help you determine the best way to tackle it.

High-interest credit card debt can be a major burden, but a balance transfer card can help by letting you move it to a new credit card with a lower interest rate.

A debt consolidation loan is more flexible and can be used to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans, and existing personal loans.

You can't always transfer other types of debt, such as student loans or mortgages, to a balance transfer card.

Paying off debt takes time, and the length of time depends on the amount you owe and the type of debt consolidation method you choose.

A balance transfer card is best for smaller debts, with a promotional APR of 0% for a limited period, usually 15 to 21 months.

You'll want to make sure you can pay off your debt within that initial period to avoid being charged interest.

A debt consolidation loan, on the other hand, has a longer repayment period, usually from one to seven years.

Many lenders offer high loan amounts, sometimes up to $50,000 or higher, making it a better fit for people with higher debt who need more time to pay it off.

If you're unsure how much debt you have, you can use a debt consolidation calculator to get a clear picture.

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To qualify for a NerdWallet debt consolidation loan, you'll need a good credit score, typically 660 or higher. This will help you secure a lower interest rate and more favorable terms.

The costs of debt consolidation loans can vary, but NerdWallet offers loans with interest rates ranging from 6.95% to 35.99% APR. You'll also need to consider any fees associated with the loan, such as origination fees or late payment fees.

Broaden your view: Best Travel Credit Cards Nerdwallet

Checking your credit score is a crucial step in determining which debt consolidation options you may qualify for. A good credit score can make a big difference in the interest rate you'll receive on a loan.

Borrowers with good to excellent credit scores (690 or higher) are more likely to be approved for a debt consolidation loan and get a low interest rate. This is because lenders view them as lower-risk borrowers.

If you have bad credit (689 score or lower), you may still be able to qualify for a consolidation loan, but you may need to take some time to build your credit. Here are some steps you can take to improve your credit score:

You can check your credit reports for free at AnnualCreditReport.com and dispute any mistakes you find. By improving your credit score, you may be able to qualify for a lower-rate loan and save money on interest.

Debt consolidation loans charge 6% to 36% APR, depending on your credit profile, debt-to-income ratio, desired loan amount and repayment term.

Balance transfer cards come with a promotional 0% APR period, but many charge a balance transfer fee, which is typically 3% to 5% of the total amount transferred.

Some lenders charge an origination fee that covers the cost of processing your loan, which can range from 1% to 10% of the loan amount.

Even with these fees, a balance transfer card or debt consolidation loan may have a lower APR than your current debts, so you can still save money.

Related reading: Charge Card vs Credit Cards

When considering debt consolidation options, it's essential to weigh the pros and cons of balance transfer cards versus personal loans. If you have high-interest credit card debt that can be paid off in under two years, a balance transfer card is likely the way to go.

A balance transfer card is ideal for consolidating large amounts of high-interest credit card debt. You can transfer your debt to a new card with a lower interest rate, saving you money on interest charges.

However, if you have multiple types of debt or a large amount of debt that can't be paid off in under two years, a personal loan might be a better option.

Here's a comparison of balance transfer cards and personal loans:

Ultimately, the choice between a balance transfer card and a personal loan depends on your individual financial situation and goals.

Consolidating credit card debt will affect your credit in a few ways. Your credit score may dip when a lender or card issuer does a hard credit inquiry after you apply for a consolidation product.

Late payments can more seriously hurt your credit, so it’s essential to pay attention to due dates and make all payments on-time. Many lenders offer automatic payments to help with this.

If you make payments on time and keep debt manageable in the future, the overall effect of consolidating credit card debt could be positive.

A small dip in your credit score is usually temporary and only a few points.