The average credit card interest rate remains near historic highs, with the latest Federal Reserve data showing a rate of 20.79 percent, down from a peak of 21.76 percent in August 2024. In contrast, the average rate for a two-year personal loan is 11.65 percent, highlighting the potential savings from consolidation.
Credit card consolidation involves combining multiple credit card balances into a single loan with one monthly payment, according to the Consumer Financial Protection Bureau. This approach offers lower interest rates and fixed repayments, providing simplicity and budget certainty, said Nick Cherry, CEO of debt recovery firm Phillips & Cohen Associates.
Personal loans also have a fixed payment schedule and a defined payoff date, unlike credit cards which only require minimum payments based on the balance. This structure prevents the cycle of paying down debt only to accrue new charges, as personal loans typically do not allow additional borrowing during repayment.
To illustrate the savings, consider someone with £15,000 in credit card debt at an average APR of 22 percent. Minimum payments would take over 23 years to clear and cost nearly £10,600 in interest. Consolidating into a five-year personal loan at 15 percent would result in a fixed monthly payment of around £357, total interest of about £6,400, and a payoff in five years.
However, consolidation does not eliminate debt; it merely transfers it. Brit Simon, chief experience officer at National Debt Relief, advised consumers to ensure the new loan improves their overall financial situation and that they can meet the committed payments. Additionally, consolidating can boost credit scores by reducing credit utilisation.
