1By paying only the minimum payments, which add up to $100 a month for all three, you would pay about $9,790 over almost 17 years. You would also shell out $4,790 in interest charges to pay off the original balance of $5,000.
2In this case, you pay $500 a month for about three years. On top of the original $5,000, you pay about $608 in interest charges.
Using a personal loan
Now let’s look at using a personal loan of $5,000 for two years (24 months) to consolidate and pay off that credit card debt. Let’s say that you're approved for a loan with a 10% interest rate. That translates to a monthly installment of $230 and total interest charged of $537 over two years for this loan.
You're paying less in total interest than in that second credit card scenario above, paying off that debt much sooner and paying less every month on the debt—by about $270 a month.
If you decide to pay off that personal loan in three years instead of two, your monthly payments would be about $161 and you'd pay total interest charges of $808. That’s a little more in total interest paid, compared to the second credit card scenario above. However, your monthly payment is $339 lower. Another thing with a personal loan, is that the loan amount, interest rate and term of the loan are fixed. View TD Fit's personal loan rates and term options.
Most credit cards have variable rates, so while you're trying to pay down your balance the rates could rise and worsen your situation. You can also keep using the cards, which increases your total debt.
How do I get approved for a personal loan?
The first step is to try to check out your options. TD Bank can prequalify consumers with a soft credit inquiry that does not affect their credit scores.
There may be several key indicators that help lenders in deciding your creditworthiness, here are just a few
Credit score. Your credit score gives lenders a sense of how likely you are to meet your financial obligations. The lower the score and the lower your creditworthiness, the higher your interest rate is likely to be.
Credit history. This is the record of your financial activity kept by the credit bureaus. It has a big influence on your credit score. Lenders tend to like to see a steady record of payments made on time, and may not like a credit report filled with late payments, bankruptcy, foreclosures or liens.
Income. Personal loan lenders may want proof that you have the means to repay the loan. An important figure here is your debt-to-income ratio. That’s the percentage of your monthly income you use to pay down your debt.
It’s always a good idea to check on these three things before you apply for a loan. That way, you can take steps to improve them and possibly improve your chances of approval or get better terms on the loan.
What to look for when comparing personal loan options
Checking your options will allow you to see what repayment terms you might expect. Consumers need to compare the various parts of the loan.
Make sure to check on those fees with any bank, credit union and online lender you consider. Compare interest rates and the APR, which combines interest rates and fees. Calculate the total cost of a potential loan by adding up the fees, total interest charges and borrowed amount over the time of the loan. View TD Bank's personal loan rates and terms.
Other things to consider:
- Does the range of maximum and minimum loans suit my needs?
- How fast will I receive the loan funds? Many lenders can approve a loan and send the money in a day or two
You can find a wide variety of information online. In many cases you can even apply for a personal loan online and have a decision within minutes.