Consolidating all of your credit card debts into one payment is likely to save you money, but will likely result in higher monthly payments. The expenses associated with credit card debt are fairly straightforward: spend more money on cards than you currently do and repeat until you run out. Getting out of credit card debt is a little more complicated. One way to pay off this debt is to combine all of these cards into one debt – an installment personal loan. Is this the best method for you?
How do installment loans work?
When you apply for a personal loan, it is structured like an installment loan. This means that you repay the loan in a series of fixed and regular payments. You borrow a lump sum for which you pay more interest. The interest rate on your personal loan depends on your credit rating. The higher your score, the more credit you have with a potential lender, and the less you will be charged. The lower your score, the riskier it appears and the more you will be billed. Interest in installment loans accumulates over time. The longer a loan has been outstanding, the more interest accumulates. However, this interest is accumulated as a function of the remaining capital, so that the actual amount that accumulates in interest decreases over time.
Finally, installment loans are paid, which means that each payment you make goes to principal and interest. The amount is determined by the loan repayment schedule. However, you can be sure that with each one-off payment of debt-free payments, you will get one step closer.
How you can save money with a loan?
Okay, that question is easy to answer: yes, if you pay your credit cards with fees, you will definitely save money in the long run. Here’s why? The standard term of an installment personal loan is between one and five years. Whatever the length of the loan repayment period, it is almost certainly less than the time required to repay your credit card if only the minimum payments were made.
The minimum monthly amounts for credit cards are often very low, and each payment is only between one and three percent of the amount owed. If interest rates are taken into account, payment for these cards can take more than a decade. Remember, the more a loan or credit card is overdue, the more interest you will end up paying. If all things are the same, the shorter repayment option will always save you a total of money.
What is the interest rate?
As already mentioned, the interest rates for personal loans and credit cards vary depending on credit worthiness. So, if you have a good loan, you can probably qualify for some personal loans at a reasonable interest rate. In addition, the interest rates on personal loans are generally lower than the interest rates on credit cards. Even if the price is higher than what you might prefer, it is probably still lower than the price you pay with your credit card.
However, if you accumulate large amounts of excessive credit card debt, your credit rating will decrease as the amount of debt you owe is the second most important factor in your credit rating. This reduces the likelihood that you can find a loan online or a loan from a physical lender with an excellent interest rate. If you have a bad score, you could end up with bad loans that actually have a higher interest rate than your credit cards. Much higher. Even if these loans are not as high as the lack of credit check loans like payday loans, title loans, and cash advances, it is probably best to ignore debt consolidation and try to pay off your credit card loans directly.
