Snowball, avalanche, ladder… debt payoff strategies read like a winter survival guide, and it seems like every financial expert has a strong preference. However, another approach could offer predictability and stability: debt consolidation with a personal loan. Here’s how that could work with Discover® Personal Loans, from checking your rate to paying off your debt.
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Trying to pay down your debt? Consider this 6-step strategy.
A personal loan could offer predictability and stability, so you can start to build a better financial future.
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1. Map your debt
Understanding how much you owe can make it easier to plan. Pull all billing statements from the previous month and list all of your current card balances, APRs, and minimum payments. This is what you’ll use to compare against personal loan offers. Next, you’ll want to find your weighted APR across cards by multiplying your interest rate times your current balance. For example (the numbers below are for a snapshot in time):
- If Card A carries an $8,000 balance at 28% APR:
- You’ll owe $2,240 in annual interest
- If Card B carries a $4,000 balance at 22% APR:
- You’ll owe $880 in annual interest
- If Card C carries a $3,000 balance at 19% APR:
- You’ll owe $570 in annual interest
That’s $3,690 in interest per year. Divide this number by your overall debt, and you’ll get 24.6% — the interest rate you’re paying across all of your cards. Use this interest rate as a benchmark to compare personal loan offers. It’s important to note that making minimum monthly payments and potential rate or APR changes could change the interest month over month for your credit cards. And, since credit card rates are variable, your interest rate and credit card balance can go down — or up — during your repayment period.
2. Check your potential loan rate
Visit Discover® Personal Loans website to check your potential rate. Since it’s not attached to an actual application for credit, a soft credit pull won’t impact your credit score at all.* Play with the loan amount and term to estimate your monthly payment and see what fits your budget.
Your goal: Find a loan APR meaningfully lower than your current blended card APR… and a payment you can stick to.
3. Run the numbers
If you were to pay down your credit cards with the monthly payment from a personal loan, how much would you pay in interest? Comparing the amount you’d pay in interest on credit cards versus a personal loan could be a helpful way to figure out what makes the most sense for you.
For example, if you were trying to pay off your $15,000 debt in a 48-month period, here’s what it could cost you:
- If you kept your credit cards with a weighted APR of approximately 24.6% and made monthly payments of $494, over 48 months, you’d pay $8,713 in total interest.
- If you consolidated your debt with a personal loan at 12.99% APR and made monthly payments of $402, over 48 months, you’d pay $4,312 in total interest.
In this example, that’s saving you more than $4,000, while helping you take control of your finances. Since credit card rates are variable, your interest rate can go up or down during that 48-month period. But a Discover® personal loan has a fixed interest rate, meaning you’ll be paying the same amount of interest for the life of the loan. Plus, once you consolidate bills, you’ll have one set regular monthly payment that’s easy to plan for. That predictability could help you pay down higher-rate debt while building a better financial future, too.
4. Compare your options
Choose a term that balances an affordable monthly payment with reasonable total interest. Review details like fees and prepayment policies so there are no surprises. Common fees to look for: origination fees (the cost to open your loan) and prepayment penalties (an additional fee you would have to pay if, say, you got a bonus or windfall and wanted to use that money to pay down your loans). Discover® Personal Loans has no fees of any kind, and offers flexible repayment terms for all loan amounts.
When you’ve chosen a personal loan that seems like a good fit, submit an application. Heads-up: that’s a hard inquiry, which can temporarily nudge your credit score down. But lowering your balances across credit cards will potentially benefit your credit score over time.
5. Direct the funds to your debt
Your personal loan could be sent to you, either as an electronic transfer or check. With Discover® Personal Loans, you can choose to pay off many creditors directly1. This helps prevent “whoops, I spent it” moments.
6. Lock in new habits
Now that your balances are down, here are a few ways to help you take control of your financial future. This includes:
- Setting your loan to autopay so you never miss a payment.
- Using your cards thoughtfully. Closing your cards immediately could ding your credit score. It could be a good idea to keep your cards open and charge a regular monthly expense (like, say, a streaming service or your cell phone bill) that you pay off in full. Lower balances on those revolving accounts may improve your credit utilization ratio — a major factor in many scores.
- Building your emergency fund so you’re not back to swiping your credit card for surprise expenses. If there’s no penalty, consider occasional lump-sum payments (like from a tax refund or bonus) to knock down your loan principal, so you can get out of debt even faster.
Bottom line: Consolidating high-interest debt with a personal loan won’t erase your debt — but it could simplify your life, clarify your payoff date, and reduce interest if your new APR is lower. And with tools like a Discover® personal loan, you could get a clearer path to a better financial future.
*After you check your rate, if you move forward with an application for a new Discover personal loan, you will need to consent to a hard credit inquiry that will appear on your credit report.
For debt consolidation, even with a lower interest rate or lower monthly payment, paying debt over a longer period of time may result in the payment of more in interest.
1 A Discover personal loan is intended for personal use and cannot be used to directly pay any Capital One account (including any Discover or Capital One credit card), secured loan, or post-secondary education loan or expense.
Discover makes loans without regard to race, color, religion, national origin, sex, disability, or familial status.