Sep
10
2013

## Paying credit card debt with an installment loan

Dear Experian,

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?

- MYR

Dear MYR,

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. Multiply 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.