How to Take Out a Personal Loan to Pay Off Credit Card Debt
It can make sense to use a personal loan to pay off credit card debt if you can get one with a lower interest rate than your credit cards.
Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site.
Credit card debt can be really hard to escape. Credit cards charge high interest, which means a lot of your money each month isn’t going to paying down your principal balance if you only make the minimum payments.
The more of your money that goes towards interest, the less likely it is you’ll be able to save or build up an emergency fund. This creates a cycle in which any time you incur unexpected expenses, you get deeper into debt.
Finding ways to eliminate your credit card debt is important, and depending on your personal situation, a personal loan to pay off credit card debt may be a good option to help you do just that.
On this page:
- Personal Loans to Pay Off Credit Card Debt
- Pros & Cons of Using a Personal Loan to Pay Off Credit Card Debt
- How to Decide Whether to Use a Personal Loan to Pay Off Credit Cards
- Alternatives to Using a Personal Loan to Pay Off Credit Card Debt
Personal Loans to Pay Off Credit Card Debt
A personal loan is a financial product available from a bank, credit union, online lender, or other financial institution, and is like most other kinds of loans. In addition, most personal loans are unsecured, so there’s no collateral guaranteeing repayment – although there are also secured loan options.
When deciding whether you are eligible for a personal loan, lenders typically look at your credit score, income, and other financial information. Your loan will typically have a fixed interest rate (though some lenders do offer variable rates) and you’ll make monthly payments as agreed upon with your lender to pay off the loan within your designated repayment term.
Though personal loans can be used for pretty much anything, they are often used for debt consolidation and paying off credit card debt to help ease the stress of multiple repayments can help you stay on track during repayment.
Find a Personal Loan to Pay Off Credit Card Debt
Loans from $5,000 to $100,000 – Rate Beat Program
- Fixed rate loans from 4.99%* APR with AutoPay
- Quick funding
Loans between $1,000 and $50,000 – Get a decision in seconds
- Rates starting at 7.99% APR
- Checking your rate won’t affect your credit score
A Loan Designed to Help Pay Off Credit Card Debt
If you’re interested in a personal loan designed specifically for paying off credit card debt, you should consider The Payoff Loan. This loan is offered by Payoff, a personal loan company striving to help borrowers get rid of credit card debt and achieve financial wellness.
Here are some things you should know before applying for this loan:
- LendEDU’s Editorial Rating: 3.92/5
- Fixed APRs: 5.99% – 24.99%
- Loan Amounts: $5,000 – $35,000
- Term Lengths: 24 – 60 months
- Minimum Credit Score: 640
- Origination Fee: 0% – 5%
- Other Fees: None
Pros and Cons of Using a Personal Loan to Pay off Credit Card Debt
There are several advantages and disadvantages to using a personal loan to pay off credit card debt. Depending on your situation, you may find one of these pros or cons relevant to you.
Pros
- Lower Interest Rates: Personal loan rates are typically well below credit card interest rates, especially if you have good or excellent credit. By paying off high interest credit card debt with a personal loan, you could save significantly in interest charges.
- Single Payment: If you have multiple credit cards, you could pay all that debt off with one personal loan, essentially consolidating it. That way, you have just one payment to manage, simplifying the repayment process and making it easier to ensure your payments are on time.
- Faster Payoff: With just one payment and a lower interest rate on a personal loan, you may find it easier to pay more than the minimum due each month. Our Debt Payoff Calculator can help you determine how much more quickly you could repay your debt after consolidating with a personal loan.
- Lower Credit Utilization: Let’s say your total credit limit on your credit cards is $10,000 and you have an outstanding balance of $7,000. This means your credit utilization ratio is 70%. If you were to reduce it to below 30%, that would immediately boost your credit score, making you more likely to qualify for a mortgage or other types of loans.
Cons
- Potential for Higher Interest: Typically, the interest you pay on a personal loan is less than the interest on your credit card. However, if you have fair or poor credit, you may only be eligible for a personal loan with a higher interest rate. If your personal loan rate isn’t lower than the interest on your credit cards, there’s little benefit to consolidating.
- Potential for Higher Interest: Typically, the interest you pay on a personal loan is less than the interest on your credit card. However, if you have fair or poor credit, you may only be eligible for a personal loan with a higher interest rate. If your personal loan rate isn’t lower than the interest on your credit cards, there’s little benefit to consolidating.
- Same Spending Behaviors: If your credit card balance is high due to poor spending habits, paying your card off with a personal loan probably won’t change the root of the problem. In fact, you could end up back in credit card debt again quickly and be back at square one. It may make sense to meet with a credit counselor or financial planner to discuss ways to stick with a budget and keep your credit card use in check.
- Slower Payoff: When you take out a personal loan, you will be able to choose your new repayment term. If you choose a longer repayment term, you may end up paying more in total interest, even if your rate is lower. Be sure to consider the total loan cost based on your loan term before taking out a personal loan.
How to Decide Whether to Use a Personal Loan to Pay Off Credit Cards
Ultimately, every borrower needs to decide on a debt repayment approach that’s right for their needs. There are, however, some situations when it typically makes sense to use a personal loan to repay your credit card debt.
First off, it may make sense to take out a personal loan to pay off your credit card debt if you can get a loan with a lower rate. If all your cards charge 15 percent interest or greater and you can get a personal loan at 8 percent, for example, then the personal loan typically makes financial sense.
If you’re not confident that you won’t overspend on your credit cards again as soon as you’ve paid off the balance with a personal loan, think twice about whether your financial situation would improve or get worse. Since your credit cards will no longer have high balances, you will be free to spend on them again, but that is clearly not a good idea.
Be sure you’re living on a budget and living within your means so you’re ready to consistently make your personal loan payments and spend responsibly.
Alternatives to Using a Personal Loan to Pay Off Credit Card Debt
Using a personal loan may not be the only way to pay off credit card debt, so you should also consider alternatives. For example:
- If you can qualify for a 0% balance transfer credit card, you may be better off doing so. You may be able to transfer the existing balances of your credit cards to a new balance transfer card that charges 0 percent interest for a set amount of time. Just make sure you can pay off the balance before the 0 percent promotional rate expires. Also, make sure you understand the differences between personal loans and credit cards.
- You may want to use a home equity loan or home equity line of credit if you have a lot of equity in your home. A home equity loan or line of credit likely will have a lower interest rate than a personal loan. But, be aware you’re putting your house at risk, so don’t do this unless you can definitely pay back what you owe. It’s also worth pointing out that interest on a home equity loan or line of credit is not deductible.
Bottom Line
Consider all of your options and make the choice that you think is likely to help you become debt-free as soon as possible. Often, a personal loan is a great option, but just make sure there is no cheaper and easier way for you to get your credit card debt paid off for good.
*Payment example: Monthly payments for a $10,000 loan at 9.34% APR with a term of 3 years would result in 36 monthly payments of $319.58. LightStream disclosures here.
