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

Taking an additional loan to pay off debt might sound counterintuitive. But it can be a solid strategy if you’re committed to paying the balance. The process is simple: Get approved for a loan and then use the funds to pay off your credit cards.  

A personal loan can make sense in several scenarios. It can simplify your debt and make it more manageable if you have multiple credit card balances that are difficult to track. Or if you can qualify for a lower interest rate with a personal loan, you can save money as you pay down your debt. 

Here’s everything you need to know about using a personal loan to pay off credit card debt, including the pros and cons. Plus, find out the best lenders for every type of credit score.

In this guide:

• How to get a personal loan to pay off credit card debt
• Best personal loans to consolidate credit card debt
• Pros and cons
• Should you use a personal loan to pay off your credit cards?
• How to choose a personal loan
• Alternatives
• FAQ

How to get a personal loan to pay off credit card debt

You can get a personal loan from various lenders: banks, credit unions, and online lenders. The process differs from lender to lender when you use a personal loan as a form of debt consolidation. 

Some lenders send the payment right to your credit card companies. Other companies deposit the loan balance into your bank account. If you get the balance in your account, you must complete an extra step and schedule the payments for your credit cards. 

The process can vary by lender, but the following are five general steps you’ll likely need to take.

1. Select your lender: Different lenders offer unique perks and interest rates. You might need to work with a specific lender, depending on your credit score. This step can take time as you shop for the best rate and terms. 
2. Apply for the loan: Once you select a lender, complete the application process. Some lenders have a preapproval process that doesn’t affect your credit score. But for most lenders, this step includes an initial application, document uploads, and selecting loan terms. 
3. Finalize the application: Once approved, you’ll sign the paperwork and finalize the loan. 
4. Get the funds: Depending on your lender, you’ll receive the loan funds in your bank account, or the lender will pay your credit card provider.
5. Make your new payments: Once you’ve paid your credit card balance, it’s time to make your new loan payments. You’ll make these payments to your new lender for the term of your loan. 

Best personal loans to consolidate credit card debt

The best lender for debt consolidation depends on your credit score and how you want to handle the repayment process. We’ve researched several of the best lenders to consider. 

Best for credit card debt: Happy Money

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Editorial rating: 4.8 out of 5

• Personal loan focused on credit card consolidation and payoff
• Checking your rate is free and won’t affect your credit score
• Loan amounts from $5,000 to $40,000

Happy Money (formerly Payoff) offers The Payoff Loan, which it intends borrowers to use for credit card balances. You can decide whether you want Happy Money to deposit the funds in your account or pay your credit card companies. 

Applying the funds to your credit card companies will save you a step because you won’t have to schedule the payments yourself. But beyond that, you can ensure you use the money for its intended purpose and begin the repayment process as soon as possible. 

The Payoff Loan has straightforward repayment terms that range from two to five years. Happy Money is transparent about the fee it charges—only one: an origination fee that costs up to 5% of the loan. When you work with Happy Money, you can track your payoff journey online and access personal support. 

• Credit score category: Fair, good (640+)
• Soft credit pull to check rates? Yes
• Deposit time: 3 – 6 days 
• Origination fee: 0% – 5%
• Late fee: None
• Rates (APR): 10.50% – 29.99%
• Discounts: None
• Repayment terms: 24 – 60 months

Best for good credit: SoFi

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Editorial rating: 5 out of 5

• Fast, easy application: Get a decision in minutes
• Loan amounts: $5,000 – $100,000

SoFi offers personal loans for several purposes, including a debt consolidation loan. The application process is simple, and you can decide whether you want SoFi to deposit the funds in your account or apply them to your credit card balances. If you opt for Direct Pay, you won’t need to worry about scheduling the transfer, and you’ll get an additional 0.25% APR discount. 

The interest rates are competitive, but the factor that sets SoFi apart from other lenders is that the company doesn’t charge any required fees. Depending on the size of your loan, the lack of fees can save you hundreds, or even thousands, of dollars. Repayment terms are longer than other lenders, but discounts can help offset the additional interest charges.

• Credit score category: Good to excellent
• Soft credit pull to check rates? Yes
• Deposit time: As soon as same day
• Origination fee: 0% to 6%
• Late fee: None
• Fixed rates (APR): 8.99% – 29.99% with all discounts applied
• Discounts: 0.25% for autopay; 0.125% for members
• Repayment terms: 36 – 84 months

Best for fair credit: Upgrade

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Editorial rating: 4.9 out of 5

• Credit health tool to monitor your credit score and get personalized recommendations
• Loan amounts: $1,000 – $50,000
• 15-day grace period before late fee is assessed

Upgrade offers easy-to-understand loan options for debt consolidation with a quick preapproval process that allows you to view terms. Plus, you can choose a debt payoff loan and have Upgrade pay the funds to your credit card companies. This perk simplifies the process and might make you eligible for an additional rate reduction.  

The interest rates are competitive, especially for the credit score requirements. But the rate might be higher than your current credit card rate, so you’ll want to check before finalizing the loan. Upgrade assesses an origination fee when you get the loan and late fees if you get behind on payments. With Upgrade, you get a fixed monthly payment and a clear payoff date.

• Credit score category: Fair (560+)
• Soft credit pull to check rates? Yes
• Deposit time: Same-day funding is available
• Origination fee: 1.85% – 9.99%
• Late fee: $10 per late payment
• Rates (APR): 8.49% – 35.97%
• Discounts: 0.50% autopay; Varying rate deduction for rewards checking and direct pay 
• Repayment terms: 24 – 84 months

Best for thin credit: Upstart

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Editorial rating: 4.8 out of 5

• Uses artificial intelligence to provide competitive rates based on unique creditworthiness
• Checking your rate won’t affect your credit score
• Loan amounts: $1,000 – $50,000

If you’re concerned your credit score must be higher to qualify for a personal loan, Upstart might be a suitable fit. With a minimum credit score requirement of 300—the lowest possible—the company considers other factors, including education and work history, to ensure personal loans are available to borrowers with little to no or poor credit. 

Upstart doesn’t offer direct payments to credit card companies. Still, you’ll get fast funds and can schedule the payment as soon as the money arrives. The only repayment terms you can choose are three or five years. But you can select your monthly payment date and access its library of educational finance resources. 

• Credit score category: Thin
• Soft credit pull to check rates? Yes
• Deposit time: 1 business day
• Origination fee: 0% – 10%
• Late fee: Whichever is greater, 5% of the past due amount or $15
• Rates (APR): 6.70% – 35.99%
• Discounts: None
• Repayment terms: 36 or 60 months

Pros and cons of personal loans to pay off credit card debt

Consider these factors before moving forward with debt consolidation. 

Pros

• Fixed interest rate:

  Credit card interest rates can fluctuate depending on the state of the market, so your payments might increase while you’re paying down your balance. Personal loans offer fixed interest rates and a stable monthly payment you can add to your budget. 

• Simplify your payments:

  If you have more than one credit card balance, it can be challenging to juggle monthly payments. Personal loans can simplify the repayment process with one payment instead of multiple. 

• Save money:

  If you qualify for a lower interest rate, you might be able to save hundreds or thousands of dollars in interest fees as you pay down your debt.

Cons

• You might pay fees:

  Some personal loans charge origination fees that range from 1% to 5% of your loan balance. For example, if you want a loan for $15,000, you might pay up to $750 in fees. 

• Interest rates could be higher:

  The interest rate for your loan could be lower or higher than the rate for your credit card. Interest rates often depend on your credit score and other factors. But in general, a lower credit score equals a higher interest rate. 

• More eligibility requirements:

  To get a personal loan, you must qualify. Depending on your credit score, finding a lender with favorable repayment terms could be challenging. 

• Monthly payments could be higher:

  Unlike credit cards, with more open-ended repayment terms and minimum required payments, a personal loan could result in higher monthly payments for the fixed repayment period.

Should you use a personal loan to pay off your credit cards?

Whether a personal loan is the best solution depends on your debt situation and the loan’s repayment terms. 

The following are scenarios where pursuing a personal loan for debt consolidation might make sense:

• You can get a personal loan with a lower interest rate.
• The loan fees are reasonable and don’t offset your potential savings. 
• Keeping track of multiple credit card payments is difficult, and you want to simplify the repayment process.
• You are committed to repaying your loan. 

How to choose a personal loan to pay off credit cards

Your credit score is often one of the most significant factors in determining the best personal loan. You can check your credit history at AnnualCreditReport.com but not your score. Sites such as Credit Karma will show you your credit score at no charge. After you check, focus on researching loan companies that make sense based on your credit history. 

As you decide which loan companies might be a fit, confirm their credit score requirements, interest rates, repayment terms, and potential fees. Once you narrow down your list, you might complete the preapproval process for two or three companies before you choose one. This part of the process is often a soft credit pull that won’t affect your credit score. (Ensure this is the case with the lender before you apply.) 

After you’re preapproved, you can review possible interest rates and repayment terms, which make it easier to budget ahead and find the best fit. Complete the preapproval application as accurately as possible to ensure your loan offer matches your preapproval offer.

Alternatives to a personal loan to pay off credit card debt

Other options exist to consolidate credit card debt or make your payments more manageable if a personal loan isn’t the right fit.

• Credit card refinancing: If you can qualify for a credit card with a 0% introductory rate for balance transfers, you might be able to use a new credit card to refinance your debt. But you must pay off your balance before the introductory rate ends to reap the benefits.
• Debt management plan: Some companies and nonprofits work with lenders on behalf of customers to help create debt repayment plans with manageable terms, but you might pay fees for the service. 
• Home equity loan or HELOC: If you own a home and have built equity, you could qualify for a home equity loan or line of credit (HELOC). The interest rates are often low, but they might be variable. 
• Friend or family loan: If you’re comfortable asking a friend or family member for a loan, this could be an option to repay your debt. 
• Retirement loan: You can often take a loan from your retirement account. Fees might apply, and you’ll miss out on the power of compound interest. However, interest rates tend to be lower, the typical repayment period is five years, and there’s no credit check.

Read More

Balance Transfer Card vs. Personal Loan

FAQ

Does a personal loan have a lower rate than a credit card?

Personal loans often have lower interest rates than credit cards. The average rate for personal loans is around 10%, while the average for credit cards is about 20%. But interest rates for personal loans can hit 35% or higher depending on your credit score.

Your interest rate for a personal loan depends on your credit score and eligible interest rate. To check your potential rate without affecting your score, you can complete the preapproval process with potential lenders.

Do I have more time to repay my balance with a personal loan?

Personal loans often have shorter repayment terms than credit cards, but it depends on your loan. Personal loan repayment terms often range from two to seven years. Many credit card providers require a minimum payment—sometimes 1% to 2% of your balance. If your minimum payment is that small, repaying your balance can take much longer. 

Will my monthly payments be smaller with a personal loan?

Payments for personal loans are often higher than payments for credit cards due to shorter repayment terms. It can be challenging to make larger payments, but you’ll pay down your debt faster and might save money on interest charges.

Does the lender pay off my credit card debt for me?

Whether a lender will pay off your credit card debt for you depends on the lender. Some lenders will transfer your loan balance to your credit card provider and even provide an interest rate discount if you opt to do so. 

However, other lenders will only deposit the loan balance to your bank account, so you must schedule the payment yourself. 

What happens if I can’t afford my personal loan payments?

If you can’t afford your loan payment, the first step is to contact your lender as soon as possible. You might be able to work with your lender to find a solution. Many loan companies have special departments dedicated to helping borrowers in this situation.