This story is part of the CNBC Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.
Credit card debt can be frustrating and seem impossible to pay off. Not to mention, it’s also expensive: the average credit card interest rate is around 16%.
If you have credit card debt that’s spread across multiple cards, one option to help you get rid of it faster is to consolidate the debt with a personal loan, which you can get from a major bank. like Wells Fargo, an online lender like SoFi, or a credit union. .
The rule of thumb is that you use the loan to pay off your credit card balances and then focus on paying off the loan itself.
A debt consolidation loan offers a number of advantages, including a potentially lower interest rate. With good credit, you could get an annual rate of around 6%. And instead of cutting corners on each of your month-to-month credit card balances, you’ll only have to worry about one monthly payment.
Also, if you repay the loan responsibly, it could help boost your credit score.
However, debt consolidation loans are not a universal solution. As with a mortgage or car loan, you will need to apply and be approved for the loan, and the interest rate you are offered will largely depend on your credit score. If your credit is low, the interest rate could be the same or higher than your credit cards.
The length of the loan can also play a role. If you need more time to pay off your debt, a longer term loan could mean a higher interest rate.
You should also be careful of fees, such as origination fees, which could negate any savings you could make by consolidating your debt.
And remember, even if consolidating your debt makes sense to you, you don’t have to pay it off. You should always aim to pay off the loan on time and in full. But if you’re struggling to manage your credit card debt, consolidation might be a good place to start.
To verify: Meet the Middle Aged Millennial: Homeowner, in Debt, and 40
More from this series: