Once in a while I receive advertisements in my mail, offering a personal loan to consolidate my debt. Apparently these institutions are watching my credit report and decided to target me noticing my credit card debt. How did I know? Because I receive them only when I am carrying a credit card balance. Yes, I do still have credit card debt but nowadays I do it only to take advatange of 0% Intro APR credit card offers for investment purposes. Once the 0% APR Introductory period is over, usually 12-15months, I pay it off, with the profit in my wallet made with the “free investment money”.
But the question is, if you are carrying genuine debt from multiple credit cards, is consolidating them with another loan a good idea?
If you happen to be one of these people that absolutely hate dealing with payments for multiple credit cards, then debt consolidation is definitely your life saver! Go for it and you’ll combine your credit card debt in one simple payment every month! Keep in mind though, getting the loan will reduce your credit score, and each loan usually does have a maximum amount. I did a quick check online, LendingClub, Prosper and LendingTree all have a maximum amount for personal loan at $35,000. So if you have more than $35,000 in debt, likely you’ll still need to deal with multiple payments every month.
Now what if you are okay with carrying all these cards and dealing with several payments? The simple rule of thumb is, it’s worthwhile only if your loan has a lower APR than your credit card debt APR. For that, you need to find out the APR of your debt (simply call the toll-free number on the back of your card), and the APR of your new loan. To do the latter you can go to their website, fill out some info and you’ll get a quote. Remember, getting the APR quote does not hurt your credit score, but once you have been approved for the loan your credit score will be affected. So if you are interested, I would encourage you to shop around and see what deals are out there. Don’t believe the APR numbers printed on the invitation numbers! They are usually the best APR and mostly likely you will get something higher. Generally, credit cards’ APR is no lower than 10%, and I have seen below 10% rates from some lenders. So if you have a good credit score it may be a good idea!
Okay, again, thanks for reading! And good luck!