SACRAMENTO, Calif. — January is here, the holidays are behind us and now many people are facing the cold shock of their credit card bills.
If you overindulged in holiday spending, you aren’t alone. U.S. credit card debt has surpassed $1 trillion.
If you find yourself struggling to pay off your bills, a personal loan could help you manage your credit card debt.
“You take the money the company is giving you in this personal loan, apply that money to pay off your higher interest credit card balances,” said Joseph Eschleman with Towerpoint Wealth.
Instead of juggling multiple credit card payments every month, use your personal loan to pay off all your credit card debt in full, leaving you with one consolidated loan that could also save you money over time.
“An interest rate on a high interest credit card might be 16, 18, 20% plus. I am not afraid to use the word astronomical, I mean, those are very, very high interest rates,” said Eschleman.
Compare that to the interest rate on a personal loan, which is typically half that at around 8% to 10%.
“The companies and the financing companies that are actually issuing these personal loans are going to check credit, verify your income, similar to what a credit card company will do,” said Eschleman.
Using a personal loan to pay off your credit card debt is not the same as being debt-free.
“It should — in theory — free you up to have a little more cash flow because you’re not paying so much in interest as you might be with these higher interest credit cards,” said Eschleman.
Spending within your means still matters.
“If you’re not willing to examine yourself and some of your financial habits, you very well could end up in the same situation that you got yourself into to begin with,” he said.
Being late on credit card payments is a serious matter too, and it could hurt your credit score. Research from Dynasty Financial Partners shows credit card delinquencies are rising and young people are being hit especially hard.
The spike happened during a strong labor market, so experts say if the unemployment rate were to rise, delinquencies could rise even further.
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