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Taking out a personal loan to pay off credit card debt can help you potentially lower your interest rate and pay down debt faster. This type of personal loan is known as a debt consolidation loan.
But before you use a debt consolidation loan to pay off credit card debt, you should understand the pros and cons and consider all your options.
Here’s how and why you should use a personal loan to pay off credit card debt:
- Why should you pay off credit card debt with a personal loan?
- Where can you get a personal loan for credit card debt?
- Pros of using a personal loan for credit card debt
- Cons of using a personal loan for credit card debt
- Is a personal loan right for you?
- How to use a personal loan to pay off credit card debt
- Other options for paying off credit card debt
Why should you pay off credit card debt with a personal loan?
There are a few reasons to consider paying off credit card debt with a personal loan.
Potentially get a lower interest rate
You may be able to get a lower interest rate when you use a debt consolidation loan, since personal loans generally have lower interest rates than credit cards. Of course, the rate you qualify for depends on your credit score, among other factors.
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.
The personal loan companies in the table below are Credible’s approved partner lenders. Through Credible, you can compare rates from all of these lenders without affecting your credit score.
|Lender||Fixed rates||Loan amounts|
|8.99% - 35.99% APR||$5,000 up to $35,000|
|7.99% - 24.99% APR||$2,500 up to $35,000|
|9.57% - 35.99% APR||$1,000 up to $40,000|
|7.99% - 25.49% APR with autopay||$5,000 up to $100,000|
|6.99% - 35.99% APR||$2,000 up to $50,000|
|8.99% - 25.81% APR10||$5,000 to $100,000|
If you’re paying off several credit card accounts with a personal loan, you’ll be able to make one monthly payment instead of keeping track of separate card payments. This can help ensure you make your payments on time, especially if you set up autopay for your monthly payments. Some lenders even offer a discount if you do this.
Before you borrow, estimate how much you’ll pay for a loan using our personal loan calculator below.
Enter your loan information to calculate how much you could pay
With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
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Switch to a fixed rate
This is also an opportunity to lock in a fixed interest rate and monthly payment. It may be easier for you to budget for predictable monthly payments. With a set repayment term, you’ll also know exactly when you can expect to repay your loan.
Where can you get a personal loan for credit card debt?
You have a few options when it comes to getting a personal loan, including online lenders, banks, and credit unions.
You can apply for a personal loan from an online lender from anywhere, as long as you have an internet connection. Many online lenders also allow you to prequalify online, which helps give you a more realistic idea of the rates and terms the lender may offer you.
In addition, online lenders generally have less stringent eligibility requirements than traditional banks. As a result, getting approved is possible even with bad credit.
A personal loan from a bank may be a good option, especially if you already have an existing relationship with one — some of them offer “loyalty” discounts if you’re an existing customer. One potential downside, however, is that banks tend to have stricter eligibility requirements than online lenders. You may also have to apply for the loan in person.
You can also get a personal loan from a credit union. Because these financial institutions are member-owned and not-for-profit, they may offer lower rates than some banks and online lenders. To qualify, you typically have to become a member.
Pros of using a personal loan for credit card debt
Consolidating credit card debt with a personal loan has several advantages, including:
- Lower interest rate: You might qualify for a lower interest rate than what you’re paying on your credit cards. 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.
Cons of using a personal loan for credit card debt
Although using a personal loan can help you save a lot of money, there are some drawbacks to consider.
- 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 origination fees for underwriting and administering your loan, but if they do, they will be reflected in your annual percentage rate (APR).
Keep Reading: Refinancing a Personal Loan: Can It Be Done?
Is a personal loan right for you?
Paying off a credit card with a personal loan can make sense if you can qualify for a lower rate.
However, to get the full benefit from using this strategy to pay down credit card debt, you have to stop or barely use your credit cards. Avoid closing those accounts, since this has the potential to lower your credit score.
Using a personal loan to consolidate debt may also make sense if you want to streamline your monthly payments or pay off your debt quicker. When you only make the minimum monthly credit card payments, it takes much longer to repay your debt.
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.|
How to use a personal loan to pay off credit card debt
Take the following steps to consolidate credit card debt with a personal loan:
- Figure out how much you need to borrow. Add up all your credit card debt balances to see how much you need to borrow.
- Review your credit. Knowing your credit score can help you narrow down your lender options, since many lenders disclose their minimum credit score requirements. You can get a free copy of your credit report weekly from each of the three major credit bureaus — Equifax, Experian, and TransUnion — through the end of 2023 with AnnualCreditReport.com. If you find any errors on your reports, dispute them with the appropriate bureau. These mistakes could be dragging down your credit score.
- Shop around. Compare rates, terms, fees, and eligibility requirements from as many lenders as possible to find the loan option that best fits your needs. Prequalify with a few lenders to find out what rates you may be offered.
- Submit a loan application. Once you’ve chosen a lender, submit a loan application. You’ll likely need to provide proof of income, like pay stubs or W-2s, so have these ready.
- Consolidate your debt. If you’re approved, you should receive funds within a week, unless your lender sends the funds directly to your creditors. After you receive the funds, use them to pay off your credit card debt.
- Repay your loan. Make on-time payments to avoid late fees and damage to your credit.
Other options for paying off credit card debt
The interest rate you’re offered on a personal loan will depend on your credit. 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.
It’s also important to note that once the balance transfer period ends, you’ll be responsible for paying interest on any outstanding balance at the card’s normal rate.
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.
Home equity loan or HELOC
A home equity loan is similar to a personal loan in that it’s a fixed-rate loan that you receive as a lump sum. You can usually borrow up to 80% of the equity you have in your home. By comparison, a HELOC operates like a credit card — you can borrow money as needed and you only pay interest on what you borrow.
HELOC and home equity loan rates are often much lower than credit card rates, but a major downside is that a lender can take your home if you fail to repay the loan, says William Bevins, a Certified Financial Planner and Certified Trust and Fiduciary Advisory based in Nashville.
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. In fact, a bankruptcy would remain on your credit report for seven to 10 years.
- Debt Consolidation vs. Bankruptcy: How to Choose
- Debt Consolidation Loan vs. Credit Card Refinancing: How To Choose
Matt Carter has contributed to the reporting of this article.