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Personal Loans

How to Take Out a Personal Loan to Pay Off Credit Card Debt

If you’re juggling high-interest credit card debt, it can feel overwhelming to keep up with payments and watch balances barely move. One option is to use a personal loan to consolidate your cards into a single payment, ideally at a lower rate. This can work well if you have solid credit and a steady income.

But if you’re already stretched thin and can’t qualify for new financing, debt relief may be the better path. Unlike loans that add new debt, debt relief programs focus on negotiating with creditors to reduce what you owe and rolling multiple balances into one manageable plan. While the process can hurt your credit in the short term, it’s designed to help you break the debt cycle. This can make it a sensible choice when other options are out of reach.

In this guide, we’ll explain how to pay off credit card debt with a personal loan, plus walk through debt relief and other alternatives so you can choose the option that best fits your situation.

Table of Contents

Are personal loans good for paying off credit card debt?

Yes, for those with good credit and a steady income.

According to the Federal Reserve, the average personal loan interest rate is 11.57%. On the other hand, the average credit card interest rate is 21.16%. For that reason, if you can consolidate your credit card debt into a personal loan, it can save you significant money on interest over time.

Here are the pros and cons of getting a personal loan to consider before applying.

Pros

  • Lower interest rates

    As we mentioned, personal loans tend to have lower interest rates than credit cards. That means more of your monthly payment will go toward paying down your principal, which can help you to get out of debt faster.

  • Set monthly payments

    Personal loans offer predictable monthly payments, which makes it easier to budget and plan your cash flow.

  • Consolidation simplifies bills

    If you have multiple credit cards, consolidating them into one personal loan can streamline multiple monthly payments into one.

  • Improved credit score

    Using a personal loan to pay off your credit card debt can improve your credit score because it reduces your credit utilization ratio, which accounts for 30% of your credit score.

  • Peace of mind

    The most significant benefit of getting a personal loan is the peace you feel after paying off high-interest debt. Combining multiple payments into one can help you feel less stressed and more organized.

Cons

  • Risk of going back into debt

    Once your credit card balances are paid off, it can be tempting to use the available space and go into debt again.

  • Fees and other costs

    Some personal loans come with origination fees, which can add to your overall debt.

  • Approval isn’t guaranteed

    Personal loans have specific requirements; not all applicants will be approved.

  • Hard inquiry

    Applying for a personal loan can result in a hard credit inquiry on your credit report, reducing your credit score by a few points.

  • Loan may not cover all debts

    Depending on your eligibility, the personal loan you qualify for may not be enough to pay off your credit cards entirely.

The key to avoiding the debt cycle is to look at how the credit card debt happened, whether from income gaps, emergencies, or overspending.
Breaking the cycle takes small steps: changing spending habits, building savings, and planning ahead.
Many unexpected costs, like car repairs or medical bills, can be handled with payment plans instead of more debt. I focus on helping clients save, cut expenses, and connect with other experts if needed.

Erin Kinkade, CFP®
Erin Kinkade , CFP®, ChFC®

How to use a loan to pay off your credit card balance

If you want to move forward with taking out a personal loan, here are the steps to take.

Step 1: Check your credit profile for mistakes

Before applying for a loan, make sure your credit profile doesn’t reflect any errors, which happens to 44% of people, according to joint research by Consumer Reports and WorkMoney. A mistake on your account could cause a lender to deny you a loan.

Step 2: Research lenders

Research several lenders to find the best rate and terms for you. You can use a marketplace like Credible to find a lender, or apply with one of our top-rated personal loan companies. For example, Happy Money specializes in credit card debt consolidation.

Step 3: Apply

Once you select a lender, complete a full personal loan application. To make the application process faster, make sure you have your picture ID and proof of income forms ready: Most lenders will require you to submit these. Your lender will conduct a hard credit pull and let you know whether you’re approved.

Step 4: Sign your loan paperwork

If you’re approved for a personal loan, read the fine print on your loan agreement. Make sure you understand the fees, interest rates, monthly payment obligations, and the length of your repayment term. If you’re satisfied with the loan agreement, sign it and return it to your lender.

Step 5: Pay off your credit card debt

After you sign your loan agreement, one of two things will happen:

  • Your lender will deposit the money directly into your bank account, which you can use to pay off your credit cards.
  • You’ll enter your credit card information, and your lender will pay off your credit cards for you.

Loan disbursement times vary depending on your lender.

Step 6: Make on-time payments

Once your credit cards are paid off, make sure to set up automatic payments for your personal loan so you don’t accidentally miss one. Work hard to stay out of credit card debt, and monitor your spending to prevent getting into high interest debt again. 

When you shouldn’t use a personal loan for credit card debt

In a few situations, an alternative, such as debt settlement or a credit card balance transfer, might make more sense than a personal loan:

  • Small amounts of debt: If you owe less than $5,000 in credit card debt, it’s better to take on a side gig to pay off the debt quickly or transfer the balance to a 0% card.
  • Low credit score: If you have a low credit score, personal loan interest rates could be higher than those on your credit card. Debt settlement companies wrok with borrowers regardless of credit score.
  • You need help managing your money: If you’re overwhelmed and you feel like you need help negotiating your debt, working with a nonprofit, a debt management company, or a reputable debt relief company can help.
  • You struggle with spending: If you tend to overspend or your expenses currently exceed your income, debt settlement could be a sensible alternative. It doesn’t involve taking on more debt to pay off your credit cards and instead works to help borrowers break the debt cycle.

View the Reddit post below for a discussion on this topic:

Alternatives

Personal loans aren’t the only available option. Typically, you need a solid income and good credit to qualify for a personal loan. For example, those who use banks as their personal loan lender have a 741 average credit score, according to Federal Reserve data.

If you don’t meet this criteria, consider these other options:

Debt settlement

If you’re several months behind on payments, another option is to work with a debt settlement company like National Debt Relief. These companies negoatiate with your credit card issuers on your behalf to settle your debt for less than you owe.

The benefits of working with a debt settlement company include settling for less than you owe, avoiding bankruptcy, and avoiding another cycle of debt. The major downside is damage to your credit score.

Debt Management Plan (DMP)

You can work with a nonprofit debt consolidation company, like the National Foundation for Credit Counseling (NFCC), to create a debt management plan (DMP).

With this plan, you close your credit card accounts and send a lump sum each month to your credit counseling agency. The agency then negotiates on your behalf to help you pay off your debt faster.

0% balance transfer credit card

If you qualify, you can apply for a 0% balance transfer credit card, which offer introductory rates for six months or more, according to the Consumer Financial Protection Bureau.

Typically, a fee applies to transfer your balance to a 0% card, but the interest savings are often worth it. This option works best if you can pay off your entire balance before the introductory rate period ends; otherwise, you’re back to having high-interest debt.

Home equity loan or HELOC

If you’re a homeowner with significant equity, you can use your equity as collateral for a home equity loan or a home equity line of credit (HELOC).

The main benefit of these home equity products is that you can use these funds for any purpose, but the downside is that if you’re unable to make your payments, your lender can foreclose on your house.


If a client has strong credit and reliable income and can qualify for a personal loan at a lower interest rate than their credit cards, I usually recommend consolidation along with a focused budgeting plan.
Budgeting is always part of the process, but if the client is experiencing more severe financial hardship, I may instead recommend exploring a DMP or, in certain cases, debt relief or settlement.

Erin Kinkade, CFP®
Erin Kinkade , CFP®, ChFC®