If you feel buried by credit card debt, you’re not alone. According to the research by Cleaver Real Estate, the most common type of debt among Millennials is credit card debt, with 67% carrying a balance. Of those who have credit card debt, the average amount millennials owe is $5,349. MMCCU has options to help manage credit card debt.
One way to tackle credit card debt is with a consolidation loan, which is a single loan or line of credit to pay off multiple other debts. The point of debt consolidation is to have one payment and a lower interest rate and it is typically used to simplify debt repayment.
If the interest rate on your credit card is high (which it typically is), consolidating into a personal loan from MMCCU at a lower interest rate can save you money. Credit Unions are known for offering lower interest rates on loans, as well as lower fees. Credit unions are not-for-profit, unlike banks, so they work to help their members above all else. Consolidating debt is not always a good idea, but in this situation it would be.
For example, let’s say you have credit card debt of $10,000 at 20% interest. Let’s say you pay that off over the course of 6 years. Over the course of paying back this debt, you will end up paying over $7,200 in interest for a total of $17,200. Your monthly payment would be $240.
However, if you were to take out a personal loan at MMCCU and use it to pay the $10,000, you would now have a new loan of $10,000 at an interest rate of 8.49%* and 48 months to pay it. You’d pay $1,850 in interest if you took the entire 48 months to pay it off, and your monthly payment would only increase to $247/month. Not only does your payment stay close to what you were paying, you will save over $5,300 in interest and have the loan paid off two years quicker.
With a consolidation loan, the key is to keep from getting too deep into debt with your existing credit card again. At MMCCU, we do not require you to close out your old credit cards, but we educate you to help keep you from building up too large of a balance and getting yourself into the same situation in the future.
If you’re drowning in credit card debt, consolidating your debt with a personal loan at MMCCU could be an option. To prevent debt in the future, it’s important to evaluate spending habits, set a budget, and stay vigilant with maintaining a healthy income-expenses ratio.