One easy move that can help you dig out of credit card debt faster


Collectively, U.S. consumers have a massive $868 billion in credit card debt — and pay more than $100 billion a year in interest and fees on those balances. The average balance-carrying household owes $9,333, according to ValuePenguin.

To manage their credit card debt, many consumers choose to consolidate it. That is, they take out a new loan and use the money to pay off all of their existing credit card balances. This move leaves them with only one balance, and one monthly payment, to deal with.

While there are many strategies you can use to consolidate and pay down your debt, taking out a personal loan is one of the most common. Here's how to figure out if it makes sense for you.

A new loan can cut your interest rate

Consolidating debt with a personal loan can be an attractive idea: Average interest rates for personal loans are considerably lower than most credit cards, according to data from the Federal Reserve.

Interest rates for personal loans vary depending on a number of factors like your credit score and the amount you're borrowing. Current rates are roughly as low as roughly 6%, according to Bankrate. The average credit card interest rate, on the other hand, is around 17.68% as of the end of September.

So if you're able to get a personal loan to consolidate your debt with a significantly lower interest rate, you can save a lot of money as you dig your way out of debt.

Let's say you owe $5,000, and can afford to put $250 per month toward that debt. With a 17.68% rate, you'd pay off the balance in 24 months, and pay $967 in interest. With a 6% rate, you'd be debt-free two months sooner, and pay just $281 in interest.

"Personal loans can be a good option," says Katie Brewer, a Dallas-based certified financial planner who runs the financial firm Your Richest Life. You can apply for a personal loan at most financial institutions, including commercial banks and credit unions.

Should you get a debt consolidation loan?

Compare terms before you consolidate

But Brewer advises you make sure there isn't a big fee to take out a personal loan, which might put you deeper in debt and negate some of the break from a lower interest rate. estimates the typical personal loan carries fees ranging from 1% to 8% of the loan.

Compare the costs and terms of consolidating with a personal loan against other options, such as using a credit card balance transfer offer. Balance transfer rates can be even lower than those of personal loans, with some cards offering a no-interest promotional period, usually of around 12 months. But you'll pay transfer fees ranging between 3% and 5% of the balance.

Balance transfer cards also require more discipline than personal loans. That's because the monthly minimum payment is low, and the rates can skyrocket for any debt remaining after the promotional period ends. A personal loan, in comparison, requires fixed monthly payments for a set number of months, after which you'll have a zero balance.

It's also worth noting that consolidating your debt could backfire if you're not careful. You'll need to take steps to rein in your spending so that you're not racking up new balances while you work to pay down the loan.

"A lot of times when people rack up credit card debt and refinance it without fixing their behavior, they end up with a consolidation loan and the credit card debt," Brewer says.

More from Grow:

acorns+cnbcacorns cnbc

Join Acorns


About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2021 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.