Americans Rank Debt Repayment As Highest Financial Priority, Study Finds – How To Get It Right
Debt can drain your budget and drain your income, especially if you’re struggling to pay off high interest revolving credit card debt. It may seem like no matter how much money you spend on debt repayment, it just keeps snowballing.
It’s no wonder that paying down debt is Americans’ top financial priority, says one recent Marcus study by Goldman Sachs. Paying off debt can seem like a daunting goal, but it can be done quickly and painlessly if you make it a priority. Here are some ways to get out of debt quickly:
- Consolidate your debts with a low-rate personal loan
- Open a credit card with balance transfer with an APR period of 0%
- Use a debt repayment or budgeting method
If you are ready to get out of debt, you can compare financial products like debt consolidation loans and credit cards with balance transfer in Credible’s online marketplace.
ADVANTAGES AND DISADVANTAGES OF A LONG-TERM PERSONAL LOAN
1. Consolidate your debts with a low-rate personal loan
Personal loans are lump sum installment loans issued directly to your bank account and they are repaid in fixed monthly installments over a set period of months or years. Like credit cards, personal loans are generally unsecured, which means they don’t require collateral. But unlike credit cards, personal loans can come with lower fixed interest rates.
The average interest rate for a personal loan was 9.46% in the first quarter of 2021, according to the Federal Reserve. In contrast, the average interest rate paid by consumers on credit card debt was 15.91%.
Since these loans have lower interest rates and a more predictable repayment schedule, they are commonly used for debt consolidation. Using a personal loan to pay off debt can help you:
- Save money on interest
- Pay off debt faster
- Reduce your monthly payments
It’s important to look for the lowest possible interest rate on a debt consolidation loan to make sure you’re saving as much money as possible. You can do this with prequalification, which allows you to check potential interest rates suitable for your needs without hurting your credit score.
The table below shows the estimated interest rate ranges offered by genuine personal lenders. You can apply for a personal loan prequalification via multiple lenders at once using Credible’s online loan marketplace.
HOW TO GET A DEBT CONSOLIDATION LOAN WITH BAD CREDIT
Since debt consolidation loans are generally unsecured, lenders determine eligibility and set interest rates based on your credit score and debt to income ratio. To get the best possible interest rate on a personal loan, you will need a good or better credit score, which is 670 or better, depending on the FICO scoring model.
You can monitor your credit score for free via Credible.
HERE’S HOW CREDIT MONITORING CAN HELP YOU IMPROVE YOUR CREDIT RATING
2. Open a credit card with balance transfer with an APR period of 0%
If you cannot cope with a growing credit card balance but you still have a good credit rating, you could potentially open a balance transfer credit card to pay off your debt on better terms. Many credit card issuers offer an interest-free introductory period of up to 21 months to attract new customers.
The biggest advantage of pay off credit card debt with a balance transfer credit card is the potential for savings. You can avoid paying interest if you can pay off the balance before the 0% annual interest rate period expires. This is an important advantage, although this debt repayment strategy has some drawbacks:
- You will need a good or better credit score to qualify for a balance transfer card with an interest-free period
- You can only use this debt consolidation method on credit card debt
- You may need to pay a balance transfer fee, usually 3-5% of the total amount
You can shop for balance transfer cards and interest-free cards in the Credible Marketplace.
3. Use a method of debt repayment or budgeting
If you don’t want to take on more debt to pay off your existing debt, you can try one of these strategies instead:
- Debt Avalanche Method: Prioritize paying off your highest interest rate debt to save money fast and have a big impact on debt repayment
- Debt Snowball Method: Focus on repaying your smaller debts to gain momentum while getting out of debt
- Budget 50/30/20: Allocate 50% of your income to necessary expenses, 30% to discretionary expenses and 20% to building up your savings and paying off your debts
DEBT SNOWBALL METHOD VS. DEBT AVALANCHE: WHAT’S THE DIFFERENCE?
Consider your financial situation before consolidating your debt
Using a balance transfer card may not be the best option for debtors with bad credit, just as using a personal loan for debt elimination may not be a good option. if you can’t get a good interest rate. It is important to consider your unique financial situation when choose a debt repayment method.
If you need help choosing a debt management product, get in touch with an experienced loan officer to Credible for more. You can also use the savings calculator below to see your potential savings on debt.
ARE YOU THINKING OF REFINANCING YOUR STUDENT LOANS? WHAT THERE IS TO KNOW
Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at email@example.com and your question could be answered by Credible in our Money Expert column.