5 Reasons a Personal Loan Is the Right Choice To Tackle Your High-Interest Debt

Credit card debt keeps many Americans from achieving financial goals. High interest rates inherent with most cards make it difficult for many to reach debt freedom. Worse yet, the average credit card indebtedness per American is $6,455, according to TransUnion. Fortunately, there are resources to help Americans struggling with credit card debt. In some cases, a personal loan is a wise choice to attack high-interest debt. Here are top reasons why a loan can help you reach debt freedom.

For You: Fidelity Says This Is a Surprising Risk of Holding Too Much Cash — Do You Have Too Much?

Read Next: 4 Low-Risk Ways To Build Your Savings in 2025

Trending Now: Suze Orman’s Secret to a Wealthy Retirement–Have You Made This Money Move?

It May Allow You To Secure a Lower Interest Rate

Credit cards are notorious for high interest rates, making it difficult to attack the principal of the debt. The current average interest rate on credit cards is 21.37%, according to the Federal Reserve Bank of St. Louis.

Compare that to the current average loan interest rate of 11.66% and it’s easy to see how a personal loan can dramatically reduce interest. Americans with a credit score of at least 670 can often qualify for competitive rates on a loan.

Discover Next: 3 Signs You’ve ‘Made It’ Financially, According to Financial Influencer Genesis Hinckley

You Can Get a Lower Monthly Payment

Making headway on principal is vital to knocking down credit card debt. Lower interest rates directly influence payments, allowing you to secure a lower monthly payment.

If you’re struggling to make minimum payments, a personal loan can provide relief. Not only can it provide a known payoff date, but it can lower payments. If possible, pay more than the minimum on the loan as it will help you achieve debt freedom quicker.

Debt Consolidation

Managing multiple credit cards can make it difficult to keep your finances in check. Each card will likely have its respective payment date or interest rate, making it challenging to get ahead.

Combining multiple credit cards into one personal loan may simplify tackling debt. Instead of multiple payment dates, you get one with a set interest rate, allowing you to focus all efforts on repaying the debt.

You May Be Able To Improve Your Credit Score

The credit score system isn’t perfect, but there are clear ways to improve your score. One of those ways is reducing the amount owed on credit cards. Paying off card balances reduces your credit utilization ratio, which is the second biggest component of a credit score.

Yes, the indebtedness shifts to a personal loan. However, consistent payments on that plus decreasing your utilization ratio can boost a credit score in relatively short order.

It Can Provide Psychological Motivation

Carrying lots of high-interest credit card debt can plague one’s mental health. Making minimum payments that barely touch the principal can make it worse.

A personal loan provides a set payoff date, with the knowledge that you’re saving hundreds, if not thousands, in interest over the life of the loan as you progress. Making payments provides psychological motivation to continue, knowing that debt freedom will happen. For Americans committed to not continuing the cycle of credit card debt, a personal loan provides welcome relief. If you have good credit, a loan provides a set date of payoff that may save substantial money on interest.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: 5 Reasons a Personal Loan Is the Right Choice To Tackle Your High-Interest Debt