How do you calculate monthly payments on a loan?

The best way to pay off loans is with a balance transfer credit card or a debt management plan, depending on your credit score. People with good credit or better (a credit score of 700+) might be able to avoid interest on their last 12-21 months of loan payments with a ... read full answer0% balance transfer credit card. People with good or excellent credit may also want to consider using a personal loan to consolidate their debt, especially if the debt will take longer than 1-2 years to pay down.

On the other hand, people who have lower credit scores or who are struggling to make their monthly payment obligations should instead consider debt management. With debt management plans, there is no credit requirement and you can benefit from reduced or eliminated interest.

Balance Transfer Credit Card: Pay Off Debt With a New Line of Credit

A balance transfer shifts your existing loans to a new credit card, but it does not eliminate the debt. Instead, you will pay down the balance at the card’s reduced interest rate, assuming it offers an introductory balance transfer APR. You can transfer balances (up to your credit limit, including fees) from auto loans, personal loans, student loans and more, depending on the credit card company. You will most likely pay a balance transfer fee of 3% - 5% on the amount of each transfer.

It’s a good idea to pay down as much of your balance as possible during the more favorable introductory interest rate period. Otherwise, you may not benefit that much from opening a new line of credit. You can use our balance transfer calculator to see how much you can save.

Consolidate Debt With a Personal Loan

A personal debt consolidation loan could give you a longer low-interest period in which to pay off loans than a balance transfer credit card. However, some people may not have the credit profile to qualify for favorable enough terms. Debt consolidation loans only make sense if your credit score qualifies you for a reduced interest rate (generally good or excellent credit is needed). You can read more in our debt consolidation guide.

Work Out a Debt Management Payoff Plan

Debt management plans extend payment terms with your creditors at a reduced interest rate, but you have to enter into an agreement in which you’ll pay a fixed amount each month. Failure to comply with the agreement could result in the plan being cancelled, which would damage your credit even further. Additionally, in exchange for reducing or eliminating your interest rate, most debt management plans require you to close your existing accounts to prevent you from adding to your debt. You can learn more by visiting our debt management guide.

Based on everything discussed above, the best approach to paying off loans is as follows.

Here’s the Best Way to Pay Off Loans:

1. Catch up on your payments. Contact your lender to see how much you need to pay to bring your account to good standing.
2. Build an emergency fund. A lot of people fall into debt because they were unprepared for an emergency. While you’re working on repaying your debt, build up to a savings account that could sustain your household for at least three months. That way you won’t fall back into the debt cycle when the next emergency appears.
3. Create a plan for paying off your debt. Look at your income, expenses, total debt, and credit score. Determine what loan, credit card, or debt management plan you can qualify for (based on your credit score) and what you can afford to pay each month. Consider meeting with a credit counselor to go over your options for loan repayment. If you’re interested in debt management, your counselor can make a plan for you. If you’re leaning toward a balance transfer card or debt consolidation loan, your counselor can give you an idea of what rate you might qualify for and how long it would take to pay off your debt.
4. Pay off debt with the highest interest rate first. This will cut down on your interest charges, which will make the repayment process much faster.
5. Pay the minimum amount on other balances. As you pay down your loans in descending order (highest interest rate first), making the minimum payment on the other balances waiting in line will help you avoid credit-score damage.

You can read about these tips in more detail in our guide on the Best Way to Pay Off Debt.