Do you have a question about consumer credit? You may find an immediate answer by using the search engine. If you can't find what you're looking for, please fill out the form, being as specific as possible.
Please note: The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team will include it in a future column.
The information contained in this column if for educational purposes only and is not legal advice. You should consult your own attorney or seek specific advice from a legal professional regarding your particular situation.
Please understand that Experian policies change over time. Column responses reflect Experian policy at the time of writing. While maintained for your information, archived responses may not reflect current Experian policy.
Topics addressed on April 19, 2006:
Paying credit card debt with an installment loan
Do I save money if I pay my credit cards off with a loan that has a lower APR with a fixed installment payment, or is it better to continue to pay the highest APR credit card until it is paid?
You might save money if you pay your credit card debt with an installment loan with a lower APR. The important factor is how long it will take you to repay the loan as compared to the credit card.
The first thing to determine is how long it will take you to pay off the credit card at its current interest rate at the payment amount you plan to pay each month. Then, determine how long it will take to repay the installment loan at the payment amount you will be required to make. Multiple the number of months to repay each account by the payment amount and compare the totals.
For example, if it will take you three years (36 months) to pay off the credit cards making a $200 payment each month, it will cost $7,200 to repay the debt. If payments for the installment loan are $150 because of the lower interest rate and it is repaid in the same period of time, you will save $1,800. But if it takes you four years (48 months) to repay the installment loan at $150 per payment, you will still repay $7,200. The repayment amount would be the same, but it would take a year longer. If the terms of the installment loan require payments over five years (60 months), even at a lower monthly payment, it will cost more than repaying the credit card directly.
To get a much more accurate idea of which option is best for you, use a debt repayment calculator. The debt repayment calculator can calculate how long it will take to repay a debt, what your payments will be at a given interest rate and the total cost to repay the debt. That should help you decide which option is best for you.
Thanks for asking.
- The "Ask Experian" team