Many Americans decided to pay down their credit card debt during the pandemic — a whopping $83 billion in 2020.
To achieve this goal, many of them took advantage of the pauses on some loan repayments (such as federal student loans) and used unemployment and stimulus funds to lower their overall credit card debt. Lockdowns and restrictions on entertainment activities also helped many spend less. Of course, not everyone who received stimulus funds and unemployment help saw it as extra money they could use to pay debt or improve their financial situation. Some people used those funds to pay their monthly obligations and had no extras leftover.
If you have balances on multiple credit cards or are concerned about your high interest rates, you might want to consider consolidating these debts into one easy payment. It’s easier to remember a single payment, and consolidation can help you pay off your debts faster. But what are the options to do this?
Applying for a low-rate credit card is one option but watch out for those balance transfer fees, as this added expense can erase any potential savings on your interest rate. Also, if the low rate is temporary, do your best to pay off the card before the low rate expires. Some low-or zero-rate credit cards will charge interest on the full balance transferred if not paid off during the promotional rate period.
While a balance transfer is a great option, a personal loan might be a better choice. A personal loan is an installment loan where you borrow a specific amount of money for a set amount of time. You make fixed payments over the life of the loan, and when you pay off the loan, it closes. It works like an auto loan or a fixed-rate mortgage in that way. They typically have fixed rates that are lower than most credit card rates. And, they can save you money in the interest you pay and lower the amount of time it takes you to pay off that credit card debt.
You can find secured and unsecured personal loan options to be used towards home projects or any other significant expenses that may come up. A secured personal loan attaches an asset as collateral (for example, a savings account). If you do not pay back the loan, the lender can take your collateral as payment. Instead of draining your savings, convert your funds into a loan, and as you pay it back, your savings becomes available again. An unsecured loan means there is no collateral used to secure the loan. Instead of relying on your assets as collateral, lenders approve this loan based on your creditworthiness.
There are many options for personal loans. Start with financial institutions you already use, as they could use your previous relationship to make decisions and offer better rates as a loyalty bonus. Also, look at the fees charged. Look for loans that don’t charge fees or penalties for early payments. Partners offers unsecured personal loans, as well as share-secured loans to help you build or rebuild your credit while you meet your personal financial goals.
Here are some more tips for making wise choices when choosing a personal loan:
First, if your goal is to pay off high-interest credit cards, try your best to stop using them. Once paid off, it can be tempting to pay with your card once it has a lot of available credit again. As we move out of the pandemic and everyone starts enjoying time out with friends and family again, there can be an even bigger temptation to use credit to do things you can’t reasonably afford. But if you don’t limit your use of credit, you may end up owing just as much as before. If you need help managing credit, we’re happy to help.
Second, we suggest you don’t borrow more than you need. The less you borrow, the lower your monthly payments will be, and the less you’ll pay in interest.
Finally, automate to make things even simpler. Log into your online or mobile banking account to set up automatic payments, so your monthly payment is one less thing to remember.
If you’re interested in learning more about whether a personal loan is a right option for you, feel free to ask us or visit our Personal Loans page.
Americans paid off a record $83 billion in credit card debt in 2020: https://www.cnbc.com/2021/03/08/americans-paid-off-a-record-83-billion-in-credit-card-debt-in-2020.html