How to Borrow Money at a Low Rate to Pay Off High Rate Credit Cards

Paying off credit cards with high interest rates has obvious advantages. Credit card debt can last for decades. For example, Utah State University reports that it can take 15 years and six months to pay off a $3,000 credit card balance at 18.9 percent if a person makes only a minimum payment of $50 dollars a month. At that rate, the debtor will pay $6,279.85 in finance charges. Taking out a loan to eliminate the interest-rate credit debt can result in immediate savings on finance charges. However, the Federal Trade Commission warns that debt consolidation does not reduce debt --- it just moves it around.

Instructions

1

Check billing statements or contact your card company to ask about the current interest rates on your cards. Make a list of your cards and rank them by interest rate, from the highest to the lowest.

2

Shop for loans that offer interest rates significantly lower than the highest interest rates on your cards. Home equity lines of credit (HELOCs) are an option if you are a homeowner with sufficient equity in your home to qualify. HELOCs offer some of the lowest interest rates available because the equity in your home serves as collateral. The strong collateral allows banks and credit unions to offer lower interest rates than on other types of loans.

3

Gather interest rates on other types of loans if a HELOC is not possible. Schedule an appointment with a banker or credit union loan officer to discuss your plan for paying off your credit card debts. Ask about other loan programs that might meet your needs, such as unsecured signature loans. Also check websites for other banks and credit unions.

4

Ask your bank or credit union about credit cards offering no finance charges through a promotional period of a year or six months. Some cards allow you to transfer balances from other cards. However, research the new credit cards thoroughly by reading the credit applications. The interest rate will change at the end of the promotional level and may exceed what you're currently paying on your most expensive card. The balance transfer option is best if you plan to transfer balances from high interest-rate cards and then pay the new cards off during the promotion.

5

Check your credit report and score. Get your credit report from AnnualCreditReport.com. The site offers free credit reports under the terms of the Fair Credit Reporting Act. Order your credit score separately, for a fee. The higher your credit score, the better your chances for approval on a low interest-rate loan. Scores of 720 or higher are excellent, while scores below 620 are poor. Write the credit bureau at its address on the report to dispute any wrong information on your credit report that could be causing a drag on your scores.

6

Borrow money at a low interest rate by applying for a HELOC, credit card or other loan. Apply by filling out paperwork from the bank. Same-day decisions are possible on some loans, but home equity loans require much more time, detail and paperwork.