Debt consolidation is a common “get-out-of-trouble” solution for troubled consumers, especially those with overwhelming credit card debt. You take out one big loan and use it to pay off smaller debts, like credit cards. It simplifies bill-paying and, if done correctly, should reduce the interest rate and your monthly payments, providing some credit card debt relief.
The problem is that interest rates on debt consolidation loans vary wildly, ranging from as low as 5% to as high as 36%. It only makes sense to consolidate if you can score a low-interest loan that is half or less the rate you’re currently paying. Most consumers having trouble with credit cards, are paying an interest rate around 25%, which adds up quickly if you can’t afford to pay it off at the end of the month.
So how do you get a single-digit interest rate that helps you pay off debt faster?
Improve your credit score!
Improving your credit score not only gets you a better rate on traditional debt consolidation loans, but also may also make you eligible for other types of a low-interest loans from a bank, credit union or online lender.
If you really get committed to on-time payments, your score may help you qualify for a zero-percent interest balance transfer credit card. Generally speaking, you would need a credit score above 700 to qualify for one of these cards.