Debt Details
Consolidation Offer
The Credit Card Trap
$0
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The Freedom Path
$0
Consolidation Savings: $0
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Understanding the Debt Trap
Why is my credit card balance barely moving? Most credit card companies set the "minimum payment" at only 2% to 3% of your total balance. Since your interest rate (APR) might be as high as 24% or more, almost your entire payment goes toward the interest. This creates a "treadmill effect" where you pay hundreds of dollars a month without actually reducing your principal debt.
What is the benefit of a debt consolidation loan? A consolidation loan typically offers a fixed interest rate that is significantly lower than a credit card APR. More importantly, it is a "closed-end" loan, meaning it has a definite end date (usually 3 to 5 years). Instead of paying interest for decades, your monthly payment is structured to ensure you are debt-free by a specific date.
Will a consolidation loan hurt my credit score? Initially, applying for a loan may cause a small, temporary dip in your score due to a "hard inquiry." However, in the long run, it often improves your score by significantly lowering your "credit utilization ratio" on your credit cards, provided you don't run up the balances again after paying them off.