Debt can drain your budget and deplete your income — especially if you're struggling to repay revolving, high-interest credit card debt. It can seem like no matter how much money you allocate toward repaying debt, it just keeps snowballing.
It's no wonder why debt repayment is the biggest financial priority for Americans, according to a recent study from Marcus by Goldman Sachs. Paying off debt can seem like an intimidating goal but it can be done quickly and painlessly if you make it a priority. Here are a few ways to get out of debt fast:
- Consolidate your debt with a lower-interest personal loan
- Open a balance-transfer credit card with a 0% APR period
- Utilize a debt repayment or budgeting method
If you're ready to get out of debt, you can compare financial products like debt consolidation loans and balance-transfer credit cards on Credible's online marketplace.
1. Consolidate your debt with a lower-interest personal loan
Personal loans are lump sum installment loans issued directly into your bank account and they're repaid in fixed monthly payments over a set period of months or years. Like credit cards, personal loans are usually 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 on a personal loan was 9.46% in Q1 2021, according to the Federal Reserve. By contrast, the average interest rate consumers paid on credit card debt was 15.91%.
Since these loans have lower interest rates and a more predictable payment 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
- Lower your monthly payments
It's important to shop around for the lowest possible interest rate on a debt consolidation loan to ensure you're saving as much money as possible. You can do this with prequalification, which lets you check potential interest rates tailored to you without hurting your credit score.
The table below shows estimated interest rate ranges offered by real personal loan lenders. You can apply for personal loan prequalification through multiple lenders at once using Credible's online loan marketplace.
Since debt consolidation loans are usually 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'll need a good or better credit score, which is 670 or better, according to the FICO scoring model.
You can monitor your credit score for free through Credible.
2. Open a balance transfer credit card with a 0% APR period
If you can't keep up with a growing credit card balance but you still have a good credit score, you could potentially open a balance transfer credit card to repay your debt on better terms. Many credit card issuers offer a zero-interest introductory period of up to 21 months to entice new customers.
The biggest advantage of paying off credit card debt with a balance transfer credit card is the potential for savings. You can avoid paying interest altogether if you can repay the balance before the 0% APR period expires. This is a significant benefit, although this debt repayment strategy does come with some drawbacks:
- You will need a good or better credit score to qualify for a balance transfer card with a zero-interest period
- You can only use this debt consolidation method on credit card debt
- You may have to pay a balance transfer fee, typically 3-5% of the total amount
You can shop around for balance transfer cards and zero-interest cards on Credible's marketplace.
3. Utilize a debt repayment or budgeting method
If you don't want to take out more debt to pay off your existing debt, you could instead try one of these strategies:
- Debt avalanche method: Prioritize paying off your highest-interest debts to save money fast and make a big impact on your debt repayment
- Debt snowball method: Prioritize paying off your smallest debts to gain momentum while getting out of debt
- 50/30/20 budget: Allocate 50% of your income toward necessary expenses, 30% toward discretionary expenses and 20% toward building your savings and paying off debt
Consider your financial situation before consolidating debt
Using a balance transfer card may not be the best option for debtors with bad credit, just like using a personal loan for debt elimination may not be a good option if you can't get a good interest rate. It's important to look at your unique financial situation when choosing a debt payoff method.
If you need help choosing a debt management product, get in touch with an experienced loan officer at Credible to learn more. You can also use the savings calculator below to see your potential debt savings.
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