When It Makes Sense To Get A Credit Card Consolidation Loan (and When It Doesn’t)

Written By: Steve Reeves

So when should you get a credit card consolidation loan?

There are 3 main reasons to consider a payoff loan:

1. You want to lower your monthly payments
2. You want to save on interest
3. You want to raise your credit score

There are many banks that will help you determine if one of these loans is right for you. Here are the top lenders to choose from today:

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DebtZero Top Choice

Payoff® Credit Lender

Recommended Credit Score

640 – 850

DebtZero Rating 4.7

APR*
5.99% – 24.99%

Loan Amount
$5,000 – $35,000

Availability
45 States

PROS:

Checking Rates Won’t Hurt Credit Score
Competitive Rates
No Late Fees

CONS:

May Charge An Origination Fee
$35,000 Max Loan Amount

Best For High Debt

SoFi® Personal Loans

Recommended Credit Score

660 – 850

DebtZero Rating 4.5

APR*
5.99% – 21.08% (With Autopay)

Loan Amount
$5,000 – $100,000

Availability
49 States

PROS:

Higher Maximum Loan Amount
Unemployment Protection Available
Can Change Payment Date

CONS:

Higher Credit Score Required
Must Meet Income Requirements

Best For Low Credit Score

Avant® Personal Loans

Recommended Credit Score

580 – 850

DebtZero Rating 4.0

APR*
9.95% – 35.99%

Loan Amount
$2,000 – $35,000

Availability
50 States

PROS:

Lower Credit Score Required
$2,000 Minimum Loan Amount
Flexible Payment Options

CONS:

Higher APR%
No Co-sign Option

Pros Of Getting A Credit Card Consolidation Loan

Saving On Interest:

Many credit cards charge massive interest rates. Getting a consolidation loan may reduce the amount of interest you pay over the life of the loan.

If you are making extra payments on your debts (which you should be :))… this can significantly reduce the time it takes to get out of debt.

Even if the rate looks good… You want to make sure the math adds up before you pull the trigger. Sometimes you will see other fees cut into the amount you would save.

Lower Your Monthly Bill:

You could lower your monthly payments by $100 or more when getting a consolidation loan. You can also stabilize your monthly expenses.

As you may know, the interest rate on credit cards change. This affects your minimum payment each month. You may be paying $20 one month and it goes up to $35 the next.

With a consolidation loan, your payment will be stable. It will be the same every single month which reduces stress at the end of the day.

Increase Your Credit Score:

When your credit card balances go to zero, your credit utilization goes way down.

Credit utilization is the amount of credit that is available to you vs. the amount of credit you use. A simple example would be:

If you had $10,000 available to you on all your credit cards.
-And-
You had $4,000 charged.
Your credit utilization would be 40%.

Credit utilization is a major factor in your credit score. 40% would be pretty high. In general, you want it lower than 30%. Really though, the lower the better.

Reduce Your Stress:

When your finances have gotten out of control, stress starts to creep in. We can talk hard numbers all day but in the end, you may just want some relief.

Getting a consolidation loan can reduce your monthly payments and give some much-needed breathing room. If you’re living paycheck to paycheck, $100 goes a long way.

Cons of Getting A Consolidation Loan:

Sometimes The Math Doesn’t Work:

Some lenders have fees that add on to the overall cost of the loan.

These fees aren’t always a deal-breaker. You may still save money over the life of the loan (especially if you pay it off early). Just make sure the numbers work for your situation.

Sometimes People Run Up Their Credit Cards Again:

Please, Please, Please Don’t Do This!

If you get a consolidation loan, the goal is to right the ship. To get yourself back on track with your finances.

You need to have the financial discipline to keep things moving in the right direction after you make this move.

If you have trouble with discipline, cut up your cards and don’t apply for another one for a while. Or if that’s too drastic use the old trick of freezing them so you have to thaw them out before use.

Some People Don’t Qualify:

There are low credit loans available and depending on the lender you may be able to use a co-signer.

If your DTI is over 50% you may have trouble getting a loan.

DTI or Debt To Income Ratio is the amount of money you owe vs the amount of money you make. If you make $4,000 a month gross income and your payments are $2000 a month then your ratio would be right at 50%.

If that’s the case, work on paying off some of your debt before applying for one of these loans.

Alright, if you have decided one of these loans may be right for you, here are the top 3 lenders right now: 

Payoff
SoFi
Avant

*Terms apply. Check with the financial institution for further qualifications. Every effort has been made to ensure the information is accurate and up to date. There are times however where the information does may match that of the financial institution.