Wednesday, 1 December 2021

Credit Card Consolidation Loans

Credit Card Consolidation Loans
18 Sep

If you’re having a hard time paying down your credit card debt, you may want to consider consolidating with a credit card consolidation loan, better known as a personal loan. This is one strategy that can help give you the extra time you need to pay down several debts, especially if you’re struggling to manage multiple monthly payments. If you’re able to find a credit card consolidation loan with a low APR, you’ll be able to slash your interest charges, too, and potentially pay your debts off even faster. Use our comparison widget below to find the best loan for you!

That being said, taking out a loan to pay off a credit card is not always the best option for everyone. It’s smart to consider the pros and cons to help determine whether a credit card consolidation loan is right for you.

In this article, we’ll cover everything you need to know about consolidating your credit debt with a loan.

What is a credit card consolidation loan?

A credit card consolidation loan is a personal loan that can be used to consolidate your credit card debt. An unsecured personal loan allows you to take out money without collateral. However, these loans can sometimes have higher interest rates because they are a risk to lenders. These types of loans can provide a fixed loan amount (what you want to borrow) with a fixed monthly payment and a fixed term. This helps you to know what you’ll pay each month and how long it will take to pay off the loan.

Personal loans can also have fixed-interest rates, meaning they won’t likely change throughout the length of your loan. These rates usually depend on your credit history. Those with good credit can usually receive lower rates than those with poor credit.

When should you consolidate?

People consolidate for many reasons and at various times. However, high-interest rates on current debt can be a major deciding factor. A credit card debt consolidation loan can possibly offer lower interest rates and provide one easy monthly payment.

Paying off your balance can often seem impossible, especially when you’re only making minimum payments each month. This might be a good time to consider consolidating your debt. With a credit card consolidation loan, you have a set period of time to pay off your debt (unlike with a credit card) so you can possibly get it paid off sooner.

If you consolidate your credit card debt with a loan, that debt is paid off. You no longer need to worry about high-interest rates and fees on your credit card accounts. Instead, you’ll only have one monthly loan payment to focus on.

While there are many good reasons to use a  loan to consolidate your debt (we will get to a couple below!), there are times when this might not be ideal. For example, if you don’t have enough income to cover the cost of your loan payment each month or if you have extremely high debt-to-income ratio, taking out a loan may not be the best option.

Why should I pay off a credit card with a loan?

There are many benefits when consolidating your credit card debt with a loan.

  • Have one monthly payment instead of multiple payments, and can possibly receive a lower interest rate and lower monthly payment.
  • Have a fixed term to pay off your loan so you can get your debt paid down faster.
  • Without several accounts to worry about each month, you can focus on paying just one.
  • By having a fixed monthly rate on a fixed schedule, you can get in the habit of paying your bill on time every month, which can help improve your credit score.
  • A loan can also help minimize your credit utilization rate. This is the rate that determines how much of your credit limit you utilize and is one of the major determining factors for your credit score. To retain a good credit score, your credit utilization rate should remain below 30%.
  • You’ll also improve your score by adding an installment loan to your credit report. Credit mix is part of calculating your credit score and it’s good to have a variety of revolving credit types.

How to qualify

When applying for a credit card consolidation loan, lenders look at certain aspects, including credit history and income. You’ll be more likely to qualify for a lower rate if you have good credit. If your credit is poor, you may want to consider a cosigner with good credit.

The lender also takes into consideration your income level to ensure you have the finances to pay your loan. Most lenders look for borrowers that have a lower debt-to-income ratio, so they know borrowers have the funds to pay.

Fees and fine print to watch out for

While consolidating your debt with a loan can be smart, it’s not perfect. There are certain things to watch out for, including fees, penalties and the annual percentage rate (APR), which can vary with each lender.

Origination fee. Some lenders may charge an origination fee of 1% to 8% to process your personal loan application. This type of fee is generally included in the APR and deducted from the loan amount. That means if you borrow $10,000 and you’re charged a 2% origination fee, you’ll walk away with a loan of $9,800. An origination fee can be a percentage of the loan amount itself or charged as a flat rate.

Rates. The annual percentage rate (APR) is usually based on the borrower’s credit score. If a borrower has good credit, there is a better chance of receiving a lower rate. It’s essential to shop around to find the best rate for your needs.

Prepayment penalties. While most lenders don’t charge a prepayment penalty, it can happen. This is a fee to the borrower if they decide to pay off their personal loan early.

Precomputed interest. A certain way some lenders calculate interest on a personal loan that can have you paying a higher interest rate if you pay off your loan before the term is up.

Credit card consolidation loan vs. balance transfer

Consolidating your credit card debt with a credit card consolidation loan might be a good option, but it’s important to look over all other prospects to know for sure.

  Credit Card Consolidation Loan Balance transfer

Types of debt you can consolidate

Personal loans can be used to pay off different types of unsecured debt, including medical bills not covered by insurance, along with credit cards.

Credit card debt only. Can’t transfer debt from cards of the same issuer.

Credit required




Up to 35.99% or higher depending on credit/lender

0% intro APR; variable APR once promo period ends

Term lengths

24-84 months

Promo periods typically last 12-21 months; balance can revolve indefinitely after that.


1%-8% origination fee; some lenders charge no origination fee.

3%-5% balance transfer fee; some offers do not charge a fee.

– Learn more about using a balance transfer to pay down debt here

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Carissa Chesanek


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