Should You Use a Personal Loan to Pay Off Credit Card Debt?

August 31, 2018
Posted by: Jeff Gitlen
Category: Personal Loans

4 Comments

Being buried by credit card debt is overwhelming. However, before taking out a personal loan to pay off credit cards, you need to consider the different advantages and disadvantages.

It’s possible that a personal loan could set you on the right path to eliminating credit card debt, but if you aren’t careful, you could create more problems for yourself.

The root cause of the high cost of credit card debt is the interest rate. Many cards are characterized by higher interest compared to other financial products such as student loans or mortgages.

Table of Contents

What is a Personal Loan?

Pros of Using a Personal Loan

Cons of Using a Personal Loan

Best Personal Loans

If you are behind on credit card debt, there is a chance that you are dealing with a high interest rate. If this is the case, then using a personal loan to pay off credit card debt may be a viable solution.

What is a Personal Loan?

A personal loan is a financial product that is often unsecured though there are secured options. They work in the same way as other loans, but their purpose is often associated with debt consolidation, home improvement, medical bills, and more. In a nut shell, they are loans for unexpected personal expenses, and one of those includes consolidating credit card debt to improve the repayment process. Like other loans, they come with repayment terms, interest rates, late payment penalties, and more.

Pros of Using a Personal Loan to Pay off Credit Card Debt

You will discover several advantages of using a personal loan to pay off credit card debt. None of these are guaranteed to all personal loan applicants, but borrowers with the right financials could experience some of these benefits. Some of those include the following:

Lower Interest Rates: Compared to the interest paid on your credit card, you could replace that credit debt with a personal loan at a lower interest rate, saving you money on interest. Creditworthy personal loan applicants have a better chance at receiving a low personal loan rate. If this is the case, using a personal loan to pay off credit card debt becomes more viable.
Single Payment: If you have multiple credit cards and debt, you could use a personal loan to consolidate those balances together under one interest rate. That way, you have just one payment to manage, simplifying the repayment process. The end benefit to this is you should have a better chance at making on-time payments.
Faster Pay Off: Another advantage of using a personal loan to wipe out your credit card debt is the opportunity to pay the balance off quicker. With just one payment and a lower interest rate, you could find it easier to pay more than the minimum amount due each month.

Cons of Using a Personal Loan to Pay off Credit Card Debt

Like all financial products, there are certainly a few cons to consider. While personal loans to pay off debt have the potential to be extremely helpful, they can also cause a few problems if you don't have your head on your shoulders. Here are a few key considerations to keep in mind when shopping for a personal loan to pay off credit card debt.

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 could end up paying more in interest since you have a lower chance of securing a low rate. Even with good credit, some lenders may charge interest at a rate that makes debt consolidation unviable. Therefore, it is important to compare options to find a lender that offers low interest personal loans.
Same Spending Behaviors: If your credit card balance is high due to poor spending habits, there is no guarantee that paying your card off with a personal loan will make a difference in how you use credit cards. For people who are not responsible with spending, a personal loan is nothing more than a temporary Band-Aid.
Slower Pay Off: As mentioned, if you pay more than the minimum monthly payment, you can pay a personal loan off relatively fast. However, if you consolidate several credit cards and stick with the minimum payment, it may take you longer to get out of debt. At the end of the day, it is still a debt obligation, and if handled poorly, you can make mistakes and extend repayment.

Best Personal Loans to Pay Off Credit Card Debt

The Bottom Line

It is important to pay off credit card debt, but you want to make smart decisions along the way. A personal loan can be a great option for some people, but be sure to do your research first so you can feel confident with your decision. Just know that debt consolidation can be a good solution if you are able to secure a lower interest rate on your debt. It can also be a poor solution if the financials do not line up in your favor.

*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.

4 Comments

Vito C

February 20, 2018 at 12:11 pm Reply

How will I know the personal loan rate will be lower than my current rate?
- Tom Flynn (Community Manager)
  
  February 22, 2018 at 12:28 pm Reply
  
  Hey Vito,
  
  That is a great question! Here at LendEDU we created a marketplace where you can compare quotes in one place. Click below:
  
  Click Here to Compare Personal Loan Lenders with our Free Application
Petyr R

March 26, 2018 at 12:56 pm Reply

Can I pay my boa credit card with a boa personal loan?
- Tom Flynn (Community Manager)
  
  March 27, 2018 at 4:08 pm Reply
  
  Hey Petyr!
  
  Thanks for the post! Here is a blog post that may help you out:
  
  https://lendedu.com/blog/bank-of-america-personal-loans-review/

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Citizens Bank Personal Loan Disclosures

*Selecting "GET MY RATE” only requires a "soft credit pull" which does not affect your credit score. Submitting a full application results in an inquiry on your credit report.

Personal loans must not be used for educational expenses or as a small business loan.

Personal Loan Rate Disclosure: Fixed interest rates from 6.49% - 19.49% (6.49% - 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.

Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

SoFi Disclaimers

REQUIRED DISCLAIMER

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

STUDENT LOAN REFINANCE

Fixed rates from 3.549% APR to 7.480% APR (with AutoPay). Variable rates from 2.360% APR to 7.725% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.360% APR assumes current 1 month LIBOR rate of 2.10% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

PERSONAL LOANS

Fixed rates from 6.325% APR to 15.615% APR (with AutoPay). Variable rates from 6.275% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of July 3, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

LIFETIME SAVINGS DISCLAIMER

**Member Lifetime Savings – Average member lifetime savings calculation of $22,359 is based on all SoFi members who refinanced their student loans between 8/16/2012 and 6/30/2016. The savings calculation is derived by taking the estimated lifetime cost of existing student loans minus the lifetime cost of SoFi loans upon refinancing for SoFi members who refinanced their student loans. SoFi’s lifetime savings methodology for student loan refinancing assumes 1) members’ interest rates do not change over time (PROJECTIONS FOR VARIABLE RATES ARE STATIC AT THE TIME OF REFINANCING AND DO NOT REFLECT ACTUAL MOVEMENT OF RATES IN THE FUTURE) 2) members make all payments on time 3) members make monthly payments for the full duration of their loan 4) members take advantage of AutoPay, which enables them to lower the APR of their loan by 0.25%. SoFi’s average savings methodology for student loan refinancing excludes refinancings in which 1) members elect SoFi loans with longer maturity than their existing student loans 2) the term length of the member’s original student loan(s) is greater is than 30 years 3) the member did not provide correct or complete information regarding his or her outstanding balance, loan type, APR, or current monthly payment. SoFi excludes the above refinancings in an effort to maximize transparency on how we calculate our average lifetime savings amount and to minimize the risk of member data error skewing the average lifetime savings amount.

Prosper Disclosures

For example, a three-year $10,000 loan with a Prosper Rating of AA would have an interest rate of 5.31% and a 2.41% origination fee for an annual percentage rate (APR) of 6.95% APR. You would receive $9,759 and make 36 scheduled monthly payments of $301.10. A five-year $10,000 loan with a Prosper Rating of A would have an interest rate of 8.39% and a 5.00% origination fee with a 10.59% APR. You would receive $9,500 and make 60 scheduled monthly payments of $204.64. Origination fees vary between 2.41%-5%. APRs through Prosper range from 6.95% (AA) to 35.99% (HR) for first-time borrowers, with the lowest rates for the most creditworthy borrowers. Eligibility for loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All loans made by WebBank, member FDIC.

LightStream Disclosures

Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice.

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.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.

PersonalLoans.com Disclaimers

Please note that PersonalLoans.com is not a direct lender, is not an agent, affiliate, broker, or representative of any lender or other financial institution. PersonalLoans.com is an online marketplace where consumers may submit a request to be connected with a lender in the PersonalLoans.com network that may be able to provide them with a loan. Loan rates, terms, and fees are decided by the lender that the consumer is connected with and not by PersonalLoans.com.

Should You Use a Personal Loan to Pay Off Credit Card Debt?

What is a Personal Loan?

Pros of Using a Personal Loan to Pay off Credit Card Debt

Cons of Using a Personal Loan to Pay off Credit Card Debt

Best Personal Loans to Pay Off Credit Card Debt

The Bottom Line

4 Comments

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