Debt Consolidation Using Celsius Crypto Loans

Debt consolidation is a form of debt refinancing that involves taking out a lower-interest loan to pay off other high-interest loans.

Do you currently have high-interest loans or a balance on your credit card? Debt consolidation using a Celsius crypto-backed loan may help you pay off your debt faster. It’s a great strategy for consolidating bad debt and/or high-interest loans, managing your finances and in turn, increasing your financial IQ. All of these skills and financial strategies are essential in managing your money, improving your credit score and enjoying an early retirement.

We will take a look at what works and what doesn’t when it comes to consolidating your debt through Celsius loans. In addition, when we look at debt consolidation using crypto-backed loans, we need to consider the following:

  1. Current Debt (type, how much and interest rate)
  2. Crypto-Backed Loans (type, how much and interest rate)
  3. Opportunity Costs (opportunities you’re foregoing to get a crypto loan)

In essence, it comes down to:

  • How much are you currently paying in interest?
  • If you take out a Celsius loan, what is the interest rate difference?
  • And what are the opportunity costs (lost reward interest on loan collateral)?

Let’s begin…

1 | Current Debt

If you feel like you’re swimming in debt with no way out, you are not alone. The latest studies show that almost 50% of people living in ‘developed countries’ suffer from uncontrollable consumer debt that they can’t seem to pay off. What’s worse is that consumer debt is usually the most costly because of their high-interest rates. The rates that you get are usually based on your ‘credit score‘. The lower your credit score, the higher the interest rates offered.

Here are some of the most common forms of consumer debt, the interest rate ranges and average interest rates that we pay:

TypeInterest Rate
(Average)
Interest Rate
(Range)
Credit Card17.99%10.99% to 26.99%
Home Equity
Line of Credit
(HELOC)
2.99%1.49% to 3.99%
Mortgage
(Fixed)
3.99%1.54% to 4.25%
Mortgage
(Variable)
2.99%1.45% to 3.99%
Car Loans4.99%0% to 6.99%
Line of Credit
(Secured)
6.99%2.99% to 14.99%
Line of Credit
(Unsecured)
9.99%4.99% to 35.99%
Student Loan
(Fixed)
3.99%2.99% to 6.28%
Student Loan
(Variable)
2.99%0.99% to 3.95%
[Please note that different financial institutions in different countries offer very different credit and debt options]

2 | Celsius Crypto-Backed Loans

Celsius offers a plethora of loan options for crypto investors. Crypto loans allow people to borrow against their cryptocurrency assets without having to sell them (and potentially miss out on future capital appreciation).

HOT TIP: In addition, getting a crypto-backed loan through Celsius is usually a non-taxable event in most jurisdictions. In other words, you won’t need to pay taxes on the loan proceeds as you didn’t sell your crypto assets.

Here are the current loan options:

APR1.00%6.95%8.95%
Platinum & paid in CEL0.75%5.21%6.71%
Gold & paid in CEL 0.85%5.91%7.61%
Silver & paid in CEL 0.90%6.26%8.06%
Bronze & paid in CEL 0.95%6.60%8.50%
LTV25%33%50%
* Please note that California, US and UK users can get 0% APR / 25% LTV loans for a limited time

As you can see, the lower the loan-to-value (LTV), the lower the interest rate (APR). This is because a lower LTV is ‘less risky’ as a borrower needs to put down more loan collateral.

As you can see, Celsius loans range from 0% to 8.95% APR. Most people would assume that if the Celsius loan APR is lower than the interest rate that they are currently paying on other loans, then it’s a no brainer. However, most people forget that there are opportunity costs associated with Celsius loans (see Section 3).

3 | Opportunity Costs

When comparing interest rates between current debt and Celsius loans, it’s important to view the bigger picture. Celsius loan interest rates may be lower than a credit card interest rate, but there are ‘opportunity costs‘ associated with taking out a crypto-backed loan.

Assets used as Celsius loan collateral DO NOT earn reward interest! Whatever amount of crypto you need to secure a loan will not generate any yield during the loan term. This is a very important distinction … and it’s called ‘opportunity costs’.

For example, stablecoins like USDC or USDT currently give Celsians 8.88% APY in-kind reward rates. If you use a stablecoin as loan collateral, that USDC or USDT no longer earns the 8.88% APY.

In addition, Celsius only offers three (3) loan-to-value (LTV) loan options that include 25%, 33% and 50%. This means that a borrower must put down excess collateral in order to receive loan proceeds. You can see below that a 25% LTV loan requires 4x the collateral… and the collateral no longer earns reward interest.

APR1.00%6.95%8.95%
LTV25%33%50%
Collateral Multiple4x3x2x
Stablecoin Loan$500$500$500
Collateral Amount$2,000$1,500$1,000

So What Works and What Doesn’t?

As mentioned above, debt consolidation involves 3 things: current debt terms, new crypto loan terms and opportunity costs.

We will explore all 4 APR options (including 0% APR) and whether debt consolidation using crypto-backed loans is viable.

In order to make a fair comparison, our numbers are based on the SAME loan amount with varying loan collateral required.


A | 0% APR / 25% LTV Crypto Loans

We’ll explore 0% APR loans first. As you can see, 0% APR Celsius loans are ‘interest-free’ loans. However, the only loan-to-value option for 0% APR crypto loans is 25% LTV. This means that a borrow must come up with 4x the loan proceeds amount for collateral.

For example, if you want a $500 USDT loan, you need to have $2,000 worth of assets for your loan collateral. The $2,000 loan collateral no longer earns reward interest, so your ‘Opportunity Cost‘ is effectively the in-kind or in-CEL reward rate x4.

0% APR In-Kind Examples

0% APR In-CEL Examples

As you can see, the only viable options are to borrow against your lowest-interest bearing assets (like ZEC or OMG) to pay down other debt. Otherwise, the opportunity costs are too high.

Take for instance BTC. If you are looking to consolidate debt and proceed to take out a Celsius crypto-backed loan against your BTC you are essentially paying 24.80% (in-kind) or 17.60% (in-CEL) due to the opportunity costs of not earning reward interest on your loan collateral. Therefore, debt consolidation via a Celsius loan using BTC as collateral makes no sense.
However, if you take out a Celsius loan using OMG as your loan collateral, you are effectively playing only 2.00% (in-kind) or 2.52% (in-CEL) which may be lower than your other higher-interest loans or debt. This option makes much more sense.


B | 1% APR / 25% LTV Crypto Loans

Here are the examples for a 1% APR loan. Just like the 0% APR loans, there is only one loan-to-value option which is 25% LTV. You will need 4x the collateral.

1% APR In-Kind Examples

1% APR In-CEL Examples

As you can see, the total interest (which includes opportunity costs) is even higher than the 0% loans because of the 1% loan interest rate. If the loan interest is paid in CEL, Platinum Level users only pay 0.75% (in-CEL).


C | 6.95% APR / 33% LTV Crypto Loans

If you are looking for the 6.95% APR loan option, the loan-to-value increases to 33% LTV. This means that you only need 3x the collateral, but you pay a higher interest rate. Since 1/3 of the assets are no longer required for loan collateral, it continues to earn interest (as depicted in ‘Crypto Earning In-Kind’ column).

6.95% APR In-Kind Examples

6.95% APR In-CEL Examples

As the APR increases from 1% to 6.95%, the total cost to you (including Opportunity Costs) also shoots higher. Therefore, 6.95% APR loans may not be the best solution for debt consolidation.


D | 8.95% APR / 50% LTV Crypto Loans

If you are looking for the 8.95% APR loan option, the loan-to-value increases again to 50% LTV. This means that you only need 2x the collateral, but you pay a considerably higher interest rate. Since 1/2 of the assets are no longer required for loan collateral, it continues to earn interest (as depicted in ‘Crypto Earning In-Kind’ column).

8.95% APR In-Kind Examples

8.95% APR In-CEL Examples

As the loan APR increases, so does the total interest rate (including Opportunity Costs), making 8.95% APR Celsius loans not viable for debt consolidation. The best option for 8.95% APR loans is to take out a loan against the lowest bearing crypto assets in your portfolio, like OMG. However, OMG loans are still going to cost you 9.70% (in-kind) or 7.66% (in-CEL).

In Summary

Celsius crypto-backed loans is an effective tool for debt consolidation. However, the key is to choose a preferable loan option (APR and LTV) and loan collateral asset.

The best options for debt consolidation are the 0% APR and 1% APR / 25% LTV and borrowing against the lowest interest-bearing crypto assets such as OMG, MANA, KNC, BAT, XLM or UMA.

We hope this article is useful!