Farewell to the interest trap: How switching your credit card debt to a favourable instalment loan can save you hundreds of euros annually
21 May 2025
5
Minutes
Katrin Straub
CEO at nextsure
Are you also finding credit card bills piling up with dizzyingly high interest rates? You're not alone, as over five million Germans are considered over-indebted, often due to expensive consumer loans. Discover how consolidating credit card debt into an affordable installment loan can not only reduce your monthly payments but also secure your financial future.
The topic in brief and concise terms
Debt restructuring can reduce the interest burden from credit cards (often over 18 percent) to an instalment loan (often below 6 percent), potentially saving hundreds of euros per year.
By consolidating multiple debts into a single payment, you gain clarity and improve your credit score in the long term.
Prerequisites for a successful debt restructuring are a regular income, a positive credit report, and a detailed household budget.
Recognize the cost trap of credit cards and avoid interest rates of over 15 percent
Many credit card providers entice with flexibility, yet the costs hide in the details, often with interest rates of 18 percent or more. With €5,000 in debt, this means annual interest costs of €900 without reducing the principal amount. The instalment payment feature means you only pay a small portion of the debt each month, causing the interest burden to grow steadily. This spiral of interest is the main reason why restructuring credit card debt into a low-interest personal loan is often the only sensible step. A summary of overdrafts and credit cards can provide additional clarity here. The high interest rates are not only costly but also have a lasting impact on your creditworthiness. An uncontrolled debt pile signals a high risk to financial institutions, making future financing more difficult. The first step towards improvement is therefore to know the exact terms of your cards and calculate the annual costs. Only with this knowledge does the full extent of the problem and the saving potential of debt restructuring become clear.
Halving interest burden: An example calculation for debt restructuring
Restructuring credit card debt into a low-interest instalment loan drastically reduces costs, often by more than 50 per cent. Imagine you have €7,000 in credit card debt at a typical interest rate of 18 per cent per annum. Your monthly interest burden alone is €105. An instalment loan with an interest rate of five per cent would reduce this burden to just €29 per month. That's a monthly saving of €76, equating to €912 per year. This calculation shows how you can create significant financial flexibility with a single measure. Consolidating multiple loans further enhances this effect. The benefits extend beyond mere interest savings:
Predictability: You have a fixed monthly payment and a defined term of, for example, 48 months.
Faster debt reduction: A larger portion of your payment goes towards repayment rather than interest.
Improved credit rating: A single instalment loan is viewed more favourably by credit agencies than multiple maxed-out credit limits.
No prepayment penalties: Generally, there is no penalty fee when paying off credit card debt early.
These specific advantages make restructuring a powerful tool for your financial health.
Step by step to successful refinancing
Debt restructuring is a well-structured process that begins with careful preparation. Even an interest rate difference of 0.2 percentage points can make refinancing worthwhile. To secure the best terms, follow these five steps:
Accurately assess debts: List all outstanding amounts on your credit cards to know the required loan amount.
Review finances: Create a detailed budget statement to determine your maximum affordable monthly payment.
Compare offers: Obtain multiple loan offers and compare the annual percentage rate, not just the nominal interest rate.
Apply for the loan: Submit the application with all necessary documents, such as payslips and a copy of your ID.
Settle old debts: After the new loan is disbursed, immediately pay off all balances on your old credit cards.
It's especially important not to fall back into old habits and to avoid reloading credit cards after settlement. This disciplined approach ensures the long-term success of your refinancing. The next section highlights the legal framework you should be aware of.
Expert Tips: Legal Aspects and SCHUFA Optimization
When consolidating credit card debt into a cheaper instalment loan, legal details and the impact on your credit rating are crucial. Consumer loan agreements are governed by Sections 491 and following of the German Civil Code (BGB), which grant you essential rights as a consumer. This includes a 14-day right of withdrawal after the conclusion of the contract. Debt consolidation will result in a credit inquiry and a new entry with the credit bureau, which may temporarily lower the score slightly. In the long term, however, a paid-off instalment loan significantly improves your credit rating as it signals reliability. A single, consolidated loan is viewed more positively than multiple outstanding liabilities. Our expert tip: Pay attention to the option of free special repayments in the new loan agreement. Many banks allow you to repay up to 50 percent of the remaining debt per year additionally, which accelerates your journey to being debt-free. Such a contract provides you with the necessary flexibility should your financial situation improve. With this knowledge, you can avoid impending personal bankruptcy and sustainably rehabilitate your finances.
Creating the right conditions for a favourable debt consolidation loan
Banks assess the same criteria during a debt restructuring as they do with any other loan application. To secure the best interest rates, good creditworthiness is essential. A Schufa score of over 95 percent is considered a good basis for negotiations. The following requirements generally need to be met:
Age of majority and residence: You must be at least 18 years old and have a permanent residence in Germany.
Regular income: A permanent employment relationship outside of the probation period is an important requirement for most banks.
Positive Schufa report: Negative entries can make debt restructuring more difficult, but they do not make it impossible.
Existing banking relationship: A German bank account is required for the processing of the loan.
Even with a less than perfect Schufa, debt restructuring can succeed, often at slightly higher interest rates. A transparent presentation of your financial situation and the planned, structured debt reduction can convince lenders. An existing installment loan can also be restructured to benefit from better terms. With the right preparation, you lay the foundation for a successful financial reorganisation.
Conclusion: Regaining financial freedom through strategic debt restructuring
Reorganising credit card debt into a favourable instalment loan is more than just a financial transaction; it's a strategic step towards greater control and reduced stress. Instead of paying high monthly interest rates of up to 20 percent, an instalment loan allows for predictable repayments at interest rates often below six percent. Consolidating multiple debts into a single rate not only improves clarity but also strengthens your credit profile in the long term. The process requires discipline, from the precise analysis of debts to the consistent repayment of the new loan. The greatest benefit is the regained financial capability and the assurance of actively and efficiently reducing your debts. A loan settlement with another bank can often secure the best terms. Take this opportunity to break the vicious cycle of costly debt. Request a personalised risk analysis now: Have your insurance situation reviewed for free and receive specific optimisation suggestions.
More useful links
Statista offers a comprehensive topic page on loans and debts.
The Federal Statistical Office (Destatis) provides official information on assets and debts in Germany.
Statista offers statistics on the level of individual debt in Germany.
The Bundesbank publishes statistics on interest rates and returns for consumer loans, particularly instalment loans.
Statista provides data on the volume of consumer loans in Germany.
The Bundesbank offers detailed MFI interest statistics on stocks and new business.
The Consumer Centre offers a report on consumer loans, credit experiences, and credit attitudes.
The Tagesschau highlights the topic of Schufa and instalment loans in an article.
The Banking Association provides information on the overall market for financial services.
FAQ
What is the first step in consolidating credit card debt?
The first and most important step is to get a precise overview of all existing debts. Add up the outstanding amounts of all credit cards to determine the total amount you need to consolidate.
How do I find the best loan for debt restructuring?
Compare offers from several banks. Pay attention to the annual percentage rate, as this includes all the costs of the loan. Use online comparison calculators to quickly find suitable terms without affecting your credit score.
Can I also top up the debt restructuring loan for other purposes?
Yes, many banks offer the option to increase the loan amount when refinancing. This means you can borrow more money than you need purely for settling old debts, providing you with extra financial flexibility.
What happens to my old credit cards after refinancing?
After settling the debts with the new loan, you should either cancel the old credit cards or at least significantly restrict their use to avoid accumulating debts again. Cancellation is also possible with existing debts if they are cleared as part of the refinancing.
How long does refinancing take?
The process from application to disbursement can be very quick. After online identification and submission of all documents, the loan amount is often transferred to your account within 24 to 48 hours.
What documents do I need for the application?
You generally need your last three payslips, complete bank statements from the last 30 days, a copy of your identity card, and ideally, the credit agreements or statements of the liabilities to be settled.
