Personal loans can be used for a wide variety of purposes, including consolidating credit card debt.
Combining multiple debts into one personal loan can make it easier to manage your payments. Plus, it can get you a lower interest rate, thereby saving you money. That’s why Christopher Fourman took out a $13,000 personal loan from SoFi in 2016. This approach helped Fourman lower his interest rate and pay off credit card debt faster.
Here’s how this savvy financial move helped Fourman conquer his debt, and his advice for others looking to do the same.
Graduating with $30,000 in student loans
When Fourman graduated from Wagner College in 2009, he left with a degree in finance. He also left owing $30,000 in student loans.
“I borrowed approximately $30,000 with interest rates varying from 2.6% all the way up to variable rates that were creeping toward 8.0%,” said Fourman.
Once the grace period on his student loans was up, Fourman was facing monthly payments of $650. “[This] was tough when I first started out because I was not making a lot of money,” he said.
It didn’t help that he graduated during a recession when finance jobs were hard to find.
With scarce employment opportunities, Fourman decided to study for his Master of Business Administration degree at Wagner. Today, he remains on campus as a senior college relations officer.
Using credit card balance transfers to save on interest
Although Fourman moved from the field of finance to higher education, he was able to put his financial skills to good use.
He built up his credit score so he could increase his borrowing options. Then, he made the most of credit card balance transfers to pay off his student loans ahead of schedule.
“[I] was able to do some crafty balance transfers to some accounts that had 0% promotional APR, which saved me thousands [of dollars],” said Fourman.
In other words, he opened credit cards offering promotional periods of 0% APR. He then transferred his student loans onto those credit cards, effectively reducing his interest rate to zero for a specified period.
This strategy is one way to save money on your student loans. Of course, you must have strong credit to qualify for certain credit cards.
You also must watch out for any balance transfer fees, which often are a percentage of your balance. Finally, you must make sure you can pay off your balance before the promotional period ends.
If not, you could get stuck with high-interest debt with an APR of 16.73% or more. Before using credit card balance transfers to pay off your student loans, make sure it’s not just a short-term solution.
Combating wedding costs and maximizing credit card rewards
Because Fourman used up the 0% APR promotion offers on his credit cards for his student loans, he didn’t have that option when it came to another big expense: planning his wedding.
“I am getting married … and falling in love is expensive!” said Fourman. “Between our wedding plans, honeymoon plans, rings, and also some great travel experiences over the last three years, our cash outflow has been a little more than our cash inflow.”
Rather than drain their savings, Fourman and his fiancee chose to use their existing credit cards and earn rewards points.
“Rather than taking all of these expenses out of savings, we opted to put some of them on credit cards to maximize the rewards and then consolidate onto a low-rate personal loan,” he said.
For Fourman and his fiancee, using credit to pay for purchases was an intentional choice. Some borrowers aren’t so strategic, so it can be easy for them to rack up credit card debt without having a plan for paying it off.
If you’ve got high-interest credit card debt, taking out a personal loan for debt consolidation could be a savvy way to pay it off.
Taking out a personal loan to consolidate debt
When Fourman started looking for a personal loan, he spent weeks in finding the right lender. “I approached my bank where I have been a customer for a long time, and their rates were so high!” he said.
His search for lower interest rates led him to SoFi, the online lender.
“I loved the community support offerings, and their team made me feel at ease,” said Fourman. “Ultimately, the website was so user-friendly and easy to navigate I ended up completing the forms one night while I was waiting for my fiancee to finish a class and then we decided to pull the trigger.”
Fourman took out a $13,000 personal loan at a 5.49% interest rate. As of May 2018, he had paid off $3,000.
“I am scheduled to pay off the personal loan in late 2020, but I pay ahead almost double every month,” said Fourman. “This will also pay off [the loan] in late 2019 at [my] current rate of payment.”
Thanks to his low interest rate and fixed monthly bills, Fourman is confident he can repay this personal loan ahead of schedule.
Consider a low-interest personal loan to pay off debt
Borrowing money can be a double-edged sword. Taking on too much debt can wreck your finances and cause you a ton of stress. But a loan with reasonable terms can be useful for meeting your goals at certain times in life, especially if you have a smart plan for repaying it.
“There are times in life where money flows out more than it flows in,” said Fourman. “A low-rate personal loan provides the peace of mind in that you can do things you need to do for yourself and your family without sacrificing your nest egg or paying thousands of dollars in interest on credit card debt.”
To qualify for low rates, you’ll need a strong credit score or have a qualifying cosigner. You also should read the fine print on any loan agreement before signing it. Watch out for any fees, for instance, and choose a repayment plan that works with your budget.
Finally, crunch the numbers using our personal loan calculator to understand how much interest you’ll be paying over the long run. By doing your due diligence, you can make the best borrowing decisions for your finances.
Interested in a personal loan?
Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. .
|7.73% – 29.99%||$1,000 – $50,000|
|5.90% – 15.24%1||$5,000 – $100,000|
|5.96% – 35.97%*||$1,000 – $50,000||Visit Upgrade|
|8.00% – 25.00%||$5,000 – $35,000|
|4.99% – 29.99%||$10,000 – $35,000||Visit FreedomPlus|
|4.99% – 16.24%2||$5,000 – $50,000||Visit Citizens|
|15.49% – 34.49%||$2,000 – $25,000||Visit LendingPoint|
|5.99% – 35.89%||$1,000 – $40,000||Visit LendingClub|
|5.49% – 18.24%||$5,000 – $75,000||Visit Earnest|
|9.95% – 35.99%||$2,000 – $35,000||Visit Avant|
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