This story is part of CNBC’s Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.
Credit card debt can be frustrating and seems impossible to pay off. Not to mention it’s also expensive: the average credit card interest rate is about 16%.
If you have credit card debt spread across multiple cards, one option to help you get rid of it faster is to consolidate the debt using a personal loan, which you can get from a big bank like Wells Fargoonline lender like SoFi or credit union.
The basic principle is that you use the loan to pay off your credit card balance and then focus on paying off the loan itself.
A debt consolidation loan offers a number of benefits, including a potentially lower interest rate. With good credit, you could get a annual rate of about 6%. And instead of eating away at every credit card balance month after month, you only have to worry about one monthly payment.
Plus, if you repay the loan responsibly, it could help boost your credit score.
However, debt consolidation loans are not a one-size-fits-all solution. Similar to a mortgage or car loan, you will need to apply for and be approved for the loan, and the interest rate you will be offered will largely depend on your credit score. If you have bad credit, the interest rate could be similar or higher than your credit cards.
The length of the loan can also play a role. If you need more time to pay off your debt, a longer term loan could mean a higher interest rate.
You also need to watch out for fees, such as origination fees, that could negate any savings you might realize by consolidating your debt.
And remember, even if consolidating your debt makes sense to you, you are not immune to paying it back. You should always aim to repay the loan on time and in full. But if you’re struggling to manage your credit card debt, consolidating it might be a good place to start.
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