3 Details to Examine When Consolidating Your Debt with a Personal Loan

Maybe you're struggling to make your monthly credit card payments, or perhaps you're tired of making minimal progress on your balances. One option you should explore is taking out a personal loan to consolidate your credit card debt.

Many individuals find that debt consolidation helps them get out of debt faster. The interest rate for a personal loan tends to be lower than that of a credit card, and you have a specific time frame in which you need to pay the debt off. Check out a few details to examine before consolidating your debt.

1. The Amount of Your Debt

Take a moment to add up the amount of the credit card debt that you want to consolidate. If you have a lot of credit card debt, you may not be able to consolidate everything with a single personal loan. The amount of your loan approval depends on a few different factors, including your credit score and income.

It can still be beneficial to consolidate some of your debt if your loan isn't sufficient to cover all your credit cards. One option is to use the loan to pay off the cards with interest rates that exceed that of your personal loan. You'll decrease your total interest expense by repaying these debts at a lower interest rate. 

2. Your Current Interest Rates

To determine your best course of action, gather all of the interest rates for your credit cards. You can find the card's interest rate on your monthly statement.

Be careful when assuming that your interest rate applies to the entire balance on the card; if you have utilized special financing promotions, part or all of your card balance might be at different interest rates than your card's usual rate. Your statement will specify what balance you are paying at which interest rate.

See if your credit card company will let you specify which balance you pay off first if your loan won't cover the entire amount. Pay attention to deferred-interest offers. Though they might be at a lower interest rate now, if you don't pay the balance off before the promo expires, you'll have the deferred interest added to your balance. 

3. Your Goal for Debt Consolidation

Decide what you want to gain from consolidating your debts. Do you want to pay the debt off quicker? Do you need to reduce your monthly expenses or improve your monthly cash flow? If you need to decrease your monthly expenses, it may be better to use the loan to pay off the debt with the highest monthly payment (even if it doesn't have the highest interest rate). Run the numbers to make sure your actions fit your goals. 

For more information about personal loans, contact a financial institution.