If you had to live off credit cards due to an emergency or job loss, you may be wondering how you'll pay them all down. It may take a big chunk of your income just to keep up with minimum payments, and progress can be very slow in paying off the balances due to the high interest rates that go with credit cards. A solution to consider is a debt consolidation loan. Here's why a debt consolidation loan could be the best way to handle your credit card debt.
Your Loan Is Paid Off In A Few Years
A debt consolidation loan is fixed. You pay the same amount every month for a few years until the loan is paid down. You always know what the amount will be, and the end of the loan isn't too far in the future. That's much different than juggling several credit card lines.
It could take many years to pay down a single credit card if it has a high balance. Plus, the total amount you pay each month can vary as you pay down one card or add new charges. This makes it difficult to make progress in paying off your cards unless you're disciplined.
You Only Have One Payment
Another benefit of consolidating your debt is that all your card payments are rolled into one. Ideally, you'll stop using your cards while you're paying down the loan so you don't add more monthly payments to your budget.
By having only one debt payment, you can manage it easier instead of having to juggle due dates and incurring multiple late charges if you get behind.
You'll Save Money
A debt consolidation loan usually has a lower interest rate than credit cards, so the monthly payment is lower. This gives your budget some relief so you can make the payments with less struggle. Also, since the loan is paid off in a few years rather than taking many years, you could save thousands of dollars by the time the loan is paid off.
Your Credit Score May Improve
If you're saving money to buy a new home or a new car, having a good credit score is important. A good score gets you more favorable terms on a loan so you save money on monthly payments and over the life of your loan.
When you have multiple credit cards that are maxed out, it affects your credit score. If you struggle to make payments on time and you're late occasionally, the late payments show up on your credit report and drop your score.
When you initially take out a debt consolidation loan, your credit score might dip since you've taken on more debt. However, your score should continue to rise as you pay off the loan and make the payments on time. That combined with no or very small balances on your credit cards should improve your credit score, especially since late credit card payments carry less weight the older they get.
Contact a provider of debt consolidation services like Rodney Anderson with Supreme Lending to learn more.