Paying multiple credit card bills every month is an exercise that most folks would prefer to do without. It’s worse when you’re only able to make minimum monthly payments. Those balances just don’t seem to go down in that scenario. Much of what you pay goes toward interest, with only a portion of the payment applied to the principal.
You could take out a debt consolidation loan to combine all those credit card payments into one single monthly loan payment, one that would be smaller and come with a lower interest rate. On paper, that seems like a good idea, but have you reached the point where you need to do it? Look for the following signs that you’re ready to take this step.
Sign #1: You’re missing credit card payments
Ideally, your monthly credit card payments should be on autopay, so you don’t miss any due dates. If you handle them manually to give yourself wiggle room, you may already be on the road toward debt unmanageability. Once you start missing payments, it’s time to consider a debt consolidation loan. You’ll want to do it quickly, if possible.
Sign #2: Your credit score is too high
One of the top factors in calculating your FICO credit score is amounts owed. It’s worth 30% of your overall score. Another 35% is allotted to your payment history. If you’re maxed out on your cards and start missing payment due dates, your credit score will go down. Consolidating that debt into one loan can help bring it back up.
Sign #3: You’re spending too much on credit card interest
The average credit card interest rate for established accounts is just north of 15%. If you’re carrying balances that total over $10,000, that’s more than $1,500 a year that you’ll pay in interest alone. According to Credit Karma, the average interest rate for a debt consolidation loan from a commercial bank is 9.34%. That would save you over $500 a year.
Sign #4: Total debt payoff will take too long
Most credit card statements show how many months it will take to pay off a balance if you just make minimum payments. That number could be a few months or several years, depending on your total balance owed and how much the minimum payment is. If your debt payoff period seems too long to you, it might be time to consider debt consolidation.
Sign #5: You’re falling behind on other bills
You know you have a problem when you put off paying the electric or gas bill to make a minimum monthly credit card payment. That’s a clear sign that something needs to change. Speak to your local bank or search for an online lender who specializes in debt consolidation loans. Don’t wait until you’re in the dark with no heat and hot water.
The bottom line: Learn to read the signs
Credit card debt might seem like it “creeped up” on you, but there are always signs when it’s starting to get out of hand. Missed payments, a rising credit score, high interest rates, long payoff periods, and falling behind on other bills are all signs you should consolidate your credit card debt. Learn to read those signs and act accordingly.
Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their nine wonderful grandchildren and two cats.