A number of credit card companies are willing to let customers skip payments during these difficult times. Even so, putting your debt on the back burner might not be a wise choice, warns investing guru Warren Buffett.
“People should avoid using credit cards as a piggy bank to be raided,” Buffett said at the annual shareholders meeting for his company, Berkshire Hathaway, in early May. “You can’t go through life borrowing money at those rates and be better off.”
While some might roll their eyes at the thought of taking credit card advice from a billionaire, the Oracle of Omaha is spot on. The average interest rate for a credit card is around 16%, and some cards carry rates higher than 22%.
So unless your credit card company is pausing interest, not just payments, all you’re doing is making it harder to claw your way out of debt in the long run.
However, there is a way to clear your credit card balance faster, even during the pandemic: by consolidating your debt with a personal loan.
Pay less interest and become debt-free sooner
With a debt consolidation loan, you can trade in all of your existing credit card debt for one monthly payment at a lower interest rate.
Free services online can let you compare terms from multiple lenders with just a few clicks, making it easy to shop around and find the best rate.
Depending on how much interest you’re currently paying, consolidating your debt could lower your monthly payment and save you thousands of dollars over the course of your loan.
Let’s say for a moment you owe $10,000 on a credit card with a 16% interest rate. If you refinanced with a 48-month debt consolidation loan at 7%, you could save $3,402 in interest over the course of your loan — and become debt-free more than eight years sooner.
Earn perks without racking up interest
Once you’ve fully paid off your credit card debt, one way to avoid digging a new hole is to switch your spending from credit to cash or debit.
Debit cards command the same convenience as credit cards — tap-to-pay transactions and online shopping — with the added benefit of only spending what you have in your account.
If you’re worried about losing out on credit card perks, some companies now offer debit cards that provide cash back rewards, too.
Credit card debt can be a vicious cycle, and deferring your payments during the pandemic is just going to drag it out. If you’ve got decent credit, consider applying for a personal debt consolidation loan and curbing your spending. You could save thousands and become debt free years sooner.