The answer depends on the type of loan you can get to pay off these credit cards. If you were able to obtain a personal loan at, say, 8% it could make perfect sense. But an interest rate that low is probably a pipe dream.
A 48-month payoff
Let’s say you can manage to pay $600 a month in total on your $15k in credit card debts. In this case, it would take you 31 months to pay it off and cost you a whopping $3,097.97 in interest.
If you qualify for a 48-month debt consolidation loan for $15,000 at an APR of 8.253%, your monthly payment would be about $367.
That’s a savings of $233 a month.
Be aware that you’re basically trading time for money because it would take you 17 more months to pay off the consolidation loan.
Why a personal loan might not be your best option
Notice that the example given above was based on locking in a low 8.253% rate. The problem with this is it’s probably unlikely you could obtain such an attractive interest rate, especially in today’s inflationary environment.
Personal loans are unsecured loans, which means you’re not typically required to offer any collateral to secure them. This makes them much riskier for lenders if you default on the loan. If you’re already challenged with debt, lenders may be likely to classify you as a potential liability.
To protect themselves, they would usually charge a higher interest rate. So, if you were able to get a personal loan, it might be more realistic to have a rate closer to 14%.
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A better option
Many people struggling with debt have found debt settlement to be a good option. This may be true if you owe that $15,000.
Debt settlement was created specifically to help people who are struggling to repay their credit cards and other unsecured debts – who are months behind on their payments and don’t qualify for a personal loan.
How debt settlement works
When you sign up with a debt settlement company, they typically take responsibility for negotiating your debts. Then you typically make an affordable monthly payment into an FDIC-insured trust account that you control.
When a sufficient amount has accumulated to resolve one of your debts and a settlement has been agreed to, reputable settlement companies will generally ask you to approve the settlement and release enough money from your account to cover the balance.
Debt settlement probably won’t get you debt free in just a few months or even a year. It generally takes anywhere from 24 to 48 months to settle all a person’s debts – depending on how much they owe. The tradeoff is that you tend to pay less than you owe on the original balance.
The difference of debt settlement
Debt settlement represents a possible way to get your credit card balances resolved. While there are other options for dealing with large debt such as a personal loan, consumer credit counseling, or a balance transfer, all of these merely move your money from one set of lenders to another. You are usually still responsible for the full amount owed.
In comparison, when a debt settlement company settles with one of your lenders, it typically does so by offering a lump sum payment that is less than your original balance.
If you’re struggling with credit card debt, a Debt Specialist at National Debt Relief can help you select the option that is right for your financial situation. You will also receive support from start to finish during this challenging, yet rewarding, time.