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Taking out a personal loan to pay off credit card debt can help you lower your interest rate and pay down debt faster. It’s no surprise that debt consolidation has become the single most popular use for personal loans.
Here’s how and why you should use a personal loan to pay off credit card debt:
- Why pay off credit card debt with a personal loan
- Pros and cons
- Other options for paying off credit card debt
- Managing your debt is within reach
Why pay off credit card debt with a personal loan
Most credit cards let you make a minimum monthly payment that barely covers your interest charges, but hardly pays down any of your principal. As a result, it can take decades to pay off credit cards making only the minimum payment. That can add up to thousands of dollars in extra interest charges.
You can accelerate payments on credit card debt without using a personal loan. But consolidating credit card debt at a lower interest rate makes it easier to pay it down faster, with more of your monthly payment going toward loan principal.
This is also an opportunity to lock in a fixed interest rate and monthly payment. And if you’re consolidating debt — paying off several credit card accounts with a personal loan — you’ll be able to make one monthly payment, instead of keeping track of all your card payments separately.
The personal loan companies in the table below are Credible’s approved partner lenders. Through Credible, you can compare rates from all of the lenders below without affecting your credit score.
|Lender||Fixed rates||Loan amounts|
|3.49% - 19.99% APR||$5,000 up to $100,000|
|6.99% - 19.99% APR1||$3,500 to $40,0002|
1Rate reduction available for AutoPay.
2You may be required to have some of your funds sent directly to pay off outstanding unsecured debt.
3After making 12 or more consecutive monthly payments, you can defer one payment as long as you have made all your prior payments in full and on time. Marcus will waive any interest incurred during the deferral and extend your loan by one month (you will pay interest during this extra month). Your payments resume as usual after your deferral. Advance notice is required. See loan agreement for details.
|6.95% - 35.99% APR||$2,000 up to $40,000|
|5.99% - 17.53% APR||$5,000 to $100,000|
Example: accelerating repayment of $15,000 in credit card debt
The table below shows that simply accelerating repayment of $15,000 in credit card debt and paying it off in three years can save you more than $30,000 in interest payments, compared to what your costs would be if you made the minimum payment for 20 years.
But if you also consolidate, your monthly payments will be more manageable — $465 instead of $535 — and you’ll reap an additional $2,509 in savings. Compared to making the minimum payment, a debt consolidation loan can save you $36,000.
|Strategy||Years of payments||Interest rate||Monthly payment||Total interest payments|
|Make the minimum payment||20||16.97%||$220||$37,719|
|Accelerate payments |
(without a personal loan)
|Consolidate and accelerate payments||3||7.25%||$465||$1,735|
|Cost to repay $15,000 in credit card debt at 16.97% interest rate, compared to personal loan at median interest rate for borrowers with good to very good credit. Source: Credible.com.|
Credit card rates are rising, but personal loan rates are lower
Credit cards have variable rates that go up when the Federal Reserve hikes short-term interest rates. But because investors who fund personal loans are looking for longer-term investments, rates on personal loans have stayed relatively low.
- Lower interest rate: When you lower your interest rate, more of your payment goes to paying down loan principal.
- Shorter repayment term: Paying off your loan faster can dramatically reduce your interest charges.
- Fixed interest rate and monthly payment: When you refinance open-ended, variable-rate credit card debt with a personal loan with a fixed rate and term, your monthly payment won’t change.
- One monthly payment: Instead of juggling several credit card accounts, you’re dealing with one lender.
- Boost your credit score: Paying off credit card debt with a personal loan can lower your credit utilization and improve your credit mix.
- Less flexible repayment: Because you have a shorter, fixed loan term, your minimum monthly payment will often be higher with a personal loan.
- Room to get deeper in debt: If you run up the balances on your credit cards again after consolidating, your total debt load will be greater than when you started.
- Origination fees: Not all lenders charge upfront origination fees, but if they do, they will be reflected in your annual percentage rate (APR).
Other options for paying off credit card debt
The interest rate you’re offered on a personal loan will depend on your creditworthiness. While there are personal loans for fair credit, you might not get a lower interest rate than what you’re paying on your credit cards. Be sure to check personal loan rates with multiple lenders.
If you can’t get a consolidation loan at a lower rate that helps you pay off your high-interest credit card debt faster, here are some other options.
Balance transfer credit card
Instead of taking out a personal loan, consider a balance transfer credit card that offers a lower, introductory interest rate during a promotional period. Keep in mind there’s often a balance transfer fee that’s calculated as a percentage of the debt you’re transferring.
Increase monthly payments
Making more than the minimum payment helps you pay down your loan principal faster, which can save you thousands in interest charges. Use the debt avalanche method to pay off cards with the highest interest rates first to maximize savings. Or if you’re looking for an instant motivational boost, consider the debt snowball method.
If you’re experiencing financial hardship, you can sometimes negotiate a lower interest rate or monthly payment with your lender, or a debt settlement that forgives part of what you owe. A nonprofit credit counseling service or debt settlement company may be able to help.
Although credit card debt can be discharged in bankruptcy, consider this a last resort. If you have debt forgiven in bankruptcy, it can take years to rebuild your credit.
Managing your debt is within reach
Whether you use a personal loan to pay off credit card debt, or choose another strategy that’s a better fit for your situation, managing your debt is within reach.
It can pay to request a free copy of your credit report and take steps to improve your credit score. You can request rates from all of the lenders below without hurting your credit score and by filling out a single form through Credible. Rates as low as 4.99%+ APR are available to borrowers with excellent credit.
About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 4.99-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 8%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.