Okay, so I know what ya’ll are thinking, how in the world can you pay credit card debt with debt and save money by doing it? It sounded crazy to me too, but it is exactly what we did! If you have credit card debt with high interest rates, then this may be a great option for you, too!
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How We Got Deep into Credit Card Debt
About 2 years ago we had a really rough year financially and we are still recovering from it! We had rented out our house to move closer to my husband’s job and I decided that I would do the property management myself to try to save money. Let me just tell ya’ll that I was definitely not cut out to be a land lord! I was way too nice to my tenant and let things go that I shouldn’t have. Well, long story short, it came back to bite us when the tenant moved out with less than a weeks notice and left the house a disaster!
We spent about four months fixing up the house on weekends and we had a brand new baby. So — brand new baby, money spent fixing up the house, 4+ months of paying a rent and a mortgage = a lot of credit card debt on cards that we had previously paid off!
What We Did About Our Credit Card Debt
We had two credit cards with large balances. Our reward card had a 16.99% interest rate and we had racked up around $9,000 on it! This was such a hard pill to swallow because barely over a year prior to the land lord debacle, we had paid it off! Our second card had a 9.99% interest rate and we had about a $5,000 balance.
Our Debt Payment Options
I wanted to get the balance on the card with the 16.99% down to avoid those high interest payments. I found that we really had two options, a balance transfer or taking out a debt consolidation loan. I did research on both of these options and came to the conclusion that the debt consolidation loan would be the best option for us to pay off our credit card debt.
Debt Consolidation Loan vs. Balance Transfer
Both a debt consolidation loan and a balance transfer are good options if you have pretty good credit to start with. There are some cards that even offer balance transfers with no fees! This is a great option and can really save you so much money in interest! If you have a smallish balance or are able to throw a lot of money at your balance during the year or so of no interest payments for a balance transfer, then I would highly recommend going this route. I almost chose to do a no fee balance transfer, but since we had a large amount of credit card debt, I knew that it was not likely that we would be able to pay it off or come very close to paying it off during the no interest period.
Why We Chose a Debt Consolidation Loan to Pay our Credit Card Debt
Ultimately, we went with a credit card consolidation loan from Lending Club. I had a previous medical loan with Lending Club, and I was always happy with them. With Lending Club you can check to see your what your interest will be on a loan with them without it impacting your credit score in any way (love this!). A big reason I don’t like checking rates with a bunch of places is due to the dings on my credit just for applying. With Lending Club, they will let you know upfront the amount they will loan you, the interest rate, and the length of the loan, with absolutely no impact on your credit score!
Click here to see what your loan amount and interest rate would be with Lending Club!
After applying with Lending Club, we took out a $13,000 credit card consolidation loan with a 5.32% interest rate and 3 years to pay it off. This loan saved us over $5,500 in interest payments! And another great thing about loans with Lending Club is that they won’t penalize you for paying off the loan faster then the agreed upon term (some lenders have a pre-payment penalty that you have to look out for.)
Benefits of a Credit Consolidation Loan
- You know the exact date your debt will be paid off! With a balance transfer to another credit card, our payments would have been flexible and if we weren’t disciplined with making large payments the balance could still take years and years and years to be paid off! With this loan, we know our debt will be paid in 3 years or less no matter what, since the loan has fixed monthly payments.
- You will have a much lower rate than most credit cards offer. This adds up to big savings for you!
- With Lending Club, everything is online and you get funds in your bank account within 7 days. You never have to visit a banking branch! Apply on line here, check your rates and offers, and if you accept an offer, your loan will be direct deposited to you within 7 days!
- Your credit score may improve! Consolidating credit card debt with a loan and paying off your credit cards can increase your credit score! Mine improved by about 20 points within 3 months of getting the loan and paying off the credit cards.
- Flexibility to save even more! Since Lending Club does not have a prepayment penalty, you can put extra money towards your loan payment each month and pay off your loan even faster than the agreed upon term!
Credit card consolidation and no transfer fee balance transfers are both great options for saving money on interest payments and paying off your credit card debt, but usually one offer will be the best option for you! Lending Club credit card debt consolidation worked well for us because I loved knowing when our debt would be paid off and the increase in our credit score was a nice little bonus! Knowing exactly when your debt will be paid off is so empowering! If you are drowning in debt and feeling hopeless that you will ever be able to pay it off, a credit card consolidation loan could be the answer for you. It definitely was for us! If you are looking for other ways to save money, you can go here to read my ultimate guide of resources for saving money!
*This post was not sponsored by Lending Club in any way and consists purely of my honest opinions based on my own personal experiences.