Using a personal loan is one of the most effective methods for tackling a mound of high-interest debt. Learn how to use this strategy to pay off debt, save on interest, and lower your monthly payment.
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Using a personal loan to pay off debt
A personal loan is an unsecured debt that can be used for almost any purpose, including debt consolidation. It has a fixed interest rate, fixed monthly payments, and a repayment period that typically lasts one to seven years. Personal loan interest rates tend to be much lower than credit card interest rates, which is why using a personal loan to pay off credit cards can save you a lot of money.
As of February 2024, the average interest rate on a two-year personal loan was 12.49%, while credit cards averaged 21.59%. according to the Federal Reserve.
Using a personal loan to pay off or consolidate debt works like this:
- Find a personal loan with an interest rate lower than the rate on your current debt.
- Apply for a personal loan to consolidate debt into one monthly payment.
- If you’re approved, sign the loan documents, receive money, and use it to pay off each debt. Some lenders can pay your creditors directly.
- Pay the loan as agreed until the loan term ends.
The cost of using a personal loan
A personal loan could help you pay off credit card debt, but what’s the true cost of using one?
Let’s say you have two credit cards you’d like to pay off over three years using a personal loan.
- Balance of $5,000 and 27.99% APR
- Balance of $7,000 and 25.99% APR
To pay off both balances, you’d need a personal loan for $12,000. You’ve prequalified for a 12.50% APR for three years. Using our personal loan calculator, this is what you’d pay for a personal loan compared to keeping the credit cards and increasing your monthly payments.
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Credit cards don’t have a set-in-stone end date for payments, but you can attempt to pay them off on your timeline. If you leave the balances on the credit cards, you’d end up paying $88 more per month and $5,595 in interest overall. Using a personal loan in this scenario saves over $3,100 in interest.
Other financing options like a home equity loan or a 401(k) loan could offer lower rates than a personal loan, but there’s also less flexibility and higher stakes.
Home equity loans require you to own a home with equity in it. Rather than using the equity to make improvements and increase its value, you’re using it for credit card consolidation. This could mean putting off future renovations or delaying a home sale.
Borrowing with a 401(k) loan has a similar appeal, except your retirement is on the line. A 401(k) loan removes that money from your retirement account and cuts into your retirement savings. Plus, there are heavy tax penalties for not paying these loans back.
Advertiser DisclosureOverview
Lightstream is one of three Credible partner lenders to offer loan amounts up to $100,000, which makes it ideal for financing large expenses like home improvements or weddings. Funds are available as soon as the same day you apply, and you'll have up to 12 years to repay certain types of loans, including home improvement loans, RV loans, and boat loans. There are no origination fees, and rates are low — Lightstream's lowest APR beats SoFi's advertised lowest APR by 1 percentage point. But you'll need good credit to qualify.
Unlike most lenders, Lightstream does not let you prequalify on its site. Nor does it provide a contact phone number next to its customer service hours on its website.
Repayment terms
2 - 12 years, depending on loan purpose
Eligibility
Available in all states except RI and VT
Time to get funds
As soon as the next business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Overview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Eligibility
Available in all 50 states
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Overview
LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Eligibility
Available in all 50 states
Loan uses
Debt consolidation, paying off credit cards
Overview
SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Fees
Option to pay an origination fee (up to 6%) in exchange for a lower rate
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Overview
Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 8.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Overview
Avant personal loans are a good choice for borrowers with bad credit looking for small- to moderate-sized personal loans. Loans are available up to $35,000 and you could get the money as soon as the next business day after approval. Plus, Avant is more likely than some lenders to approve the applications of borrowers who've prequalified with Avant. However, the lender charges an origination fee up to 9.99%, and its top-range interest rates are among the highest of the lenders we reviewed.
Fees
Origination fee, late fee, dishonored payment fee
Eligibility
Available in all states except HI, IA, MA, ME, NY, VT, and WV
Time to get funds
As soon as the next business day (if approved by 4:30 p.m. CT on a weekday)
Loan uses
Debt consolidation, emergency expense, life event, home improvement, and other purposes
Repayment terms
1 to 5 years (2 to 5 years through Credible)
Overview
It’s worth considering a personal loan through Splash if you have good credit (ideally, a FICO score above 700). The platform offers loans from a wide range of lenders, and next-day funding is available. Plus, Splash has a live chat feature so you can get real-time answers without having to wait on hold or for an email. Loans are available up to $100,000 if you apply via Splash’s website.
Rates are competitive, but borrowers with excellent credit may find lower APRs elsewhere. If you need a repayment term longer than five years, you’ll need to look elsewhere as well.
Loan amount
$5,000 - $100,000 (up to $35,000 on Credible)
Eligibility
Available in all states except VT. OH and NM net disbursed amount must be greater than $5,000. MA must be greater than $6,000
Time to get funds
Same day available, typically 1-3 days
Loan uses
Debt consolidation, home improvement, medical expenses, major purchases
Overview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Eligibility
Available in all states except MA, MS, NV, and OH
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Overview
BHG Money stands out for offering the largest loan amounts — up to $200,000 — of any Credible partner lenders. Simply put, if you need an unsecured personal loan over $100,000, there are very few places to look, but BHG is one. You'll have up to 10 years to repay the loan, but you'll need an annual income of at least $100,000 to qualify and a FICO score that's 660 or higher. However, if you have a cosigner that meets these requirements, BHG will consider your application.
Loan amounts start at $20,000, so look elsewhere for small loans. And BHG charges a modest origination fee between 2% and 4%, depending on your financial profile. Loan funds are available within three to 14 days of loan approval. Note that you can't prequalify with BHG.
Fees
Origination fees, late fees
Eligibility
Available in all states except Maryland and Illinois
Loan uses
Debt consolidation, baby (adoption), engagement ring financing, moving (relocation), business, home improvement, special occasion, cosmetic procedures, major purchase, taxes, credit card refinancing, medical expenses, vacation, wedding, other
Fees
Origination Fee, $15 Late Fee, $25 NSF Fee
Eligibility
Available in all states except CO, CT, ME, NV, NH, TN, VT, WV, WY, and all U.S. Territories
Time to get funds
Funds typically deposited into your account in 1 business day13
Loan uses
Debt consolidation, credit card refinancing
Overview
OneMain Financial has multiple options for bad-credit personal loans. There is no minimum credit score required (if you apply directly with OneMain), which means you could get a loan with bad credit (FICO below 580). Plus, cosigners are allowed — a cosigner is someone (ideally, with good credit) who promises to repay the loan if you can't, which can make it easier to qualify or lower your rate. And, secured personal loans are available. You secure a loan with collateral, which may also help you qualify or lower your rate.
Rates are higher than competitors and OneMain charges origination fees as either a flat fee up to $500, or a percentage from 1% to 10% (depending on your state of residence). Note that even if you prequalify for a personal loan with OneMain, getting approved isn't a given.
Fees
Origination fee, unsuccessful payment fee, late fee
Eligibility
Must have photo I.D. issued by U.S. federal, state or local government
Time to get funds
As soon as 1 to 2 days after acceptance
Loan use
All except business, and education
Pros and cons of using a personal loan to pay off debt
In most cases, paying off your debt with a personal loan puts you in a better financial position. The disadvantages might push you to reorganize your finances.
Pros
- Lower fixed interest rate: On average, personal loans have lower interest rates than credit cards. The interest rate also doesn’t change, unlike credit cards. That means you’ll likely pay less over time.
- Fixed payment and repayment date: Instead of a fluctuating payment, you’ll have the same payment each month. Plus, you’ll know exactly when you’ll be done repaying the loan.
- Pay off multiple cards with one loan: If you have multiple cards to pay off, this could help simplify your monthly bill routine by consolidating multiple debts into one payment.
- Faster payoff: Paying more toward the principal and less toward the interest helps you pay off debt faster and could cut years off your repayment timeline.
Cons
- Loan origination fee: Some personal loans have fees attached. The most common is a loan origination fee. This ranges anywhere from 1% to 10%, though it could be higher, and could cut into how much you’re saving.
- Higher monthly payment: The new payment on a personal loan is likely higher than the minimum payments on your credit cards. Make sure your new payment fits into your budget before accepting the loan.
- Available credit card balance: When paying off your credit cards with a personal loan, you gain more available balance to spend on your credit card. If you have trouble resisting the urge to spend more, it could be a problem.
Learn More: Should I Pay Off Debt or Save?
How to apply for a personal loan to pay off debt
Follow these steps to find the best personal loan for you.
- Prequalify: Before settling on a final decision, you should weigh your options by prequalifying with multiple lenders. This process allows you to see what your potential annual percentage rate (APR) — which includes the interest rate plus fees — loan amount, and monthly payment could be without incurring a hard inquiry on your credit report. Prequalification is not an offer of credit, however, and the final rate you get from your lender could be higher.
- Choose the best loan option: Narrow down your choices to 2 or 3 and choose one with the best terms and lowest fees. Calculate how each option fits into your budget and make adjustments where needed.
- Complete an application: After making the final choice, fill out an application with your personal information. The lender will then perform a hard pull of your credit. You could get a decision back within a few minutes or in about two business days, depending on the lender.
- Receive funding: If you’ve been approved, you can choose between having the loan funds sent to your bank account to pay off debt on your own or having the lender pay your debts directly, if your lender offers it. If it’s the latter, you’ll need to enter payment details for each debt.
- Begin repayments: After the debts have been paid off, it’s time to begin repaying your loan. Setting up automatic payments is the easiest way to make your payments on time. With some lenders, signing up for autopay even gives you an interest rate discount.
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Other alternatives to pay off debt
Here are some alternatives to a personal loan.
- Debt avalanche or debt snowball methods: These two debt payoff methods pair well with a debt consolidation tool like a personal loan. Organize your debts by highest to lowest interest rate (for debt avalanche) or highest to lowest balance (for debt snowball). Pay as much as you can toward the highest interest rate debt or the lowest balance debt, while all others get minimum payments. When the first debt is paid off, add the payment for that to the next debt on the list and repeat.
- 0% APR balance transfer card: This option involves transferring existing balances to a 0% APR card. By taking advantage of a 0% APR promotion, you can speed up your debt payoff and save money on interest. The drawback is that balance transfer credit cards resume the standard APR after the promotion ends.
- Home equity loan: A home equity loan uses the equity within your home to finance a loan. Since these loans use your home as collateral, there’s less risk for the lender, so they often have lower interest rates compared to personal loans. However, if you default on the loan, the lender can seize your collateral.
- 401(k) loan: Borrowing from your 401(k) pulls money from your retirement savings account at a low interest rate (usually the prime rate plus 1 percentage point to 2 percentage points). Payments come directly from your paycheck, so repayment is automatic, but it could derail your retirement plans if you aren’t prepared to increase your retirement contributions.
FAQ
Can I use a personal loan to pay off multiple types of debt?
Yes and no. You can pay off multiple types of debt with a personal loan, including credit cards. However, using a personal loan to pay off a student loan is prohibited by most lenders. Instead, you can refinance your student loans with a student loan lender. Keep in mind that if you refinance your federal student loans, you could lose government protections such as forbearance, deferment, and income-driven repayment options.
How does using a personal loan to pay off debt affect my credit score?
Typically, credit card consolidation with a personal loan boosts your credit score after an initial dip. If you’re using it to pay down high-interest credit card balances, you’ll find your credit utilization will decrease, which helps to boost your credit score.
How long does it take to receive funds from a personal loan for debt repayment?
With most personal loans it takes about two to three days to receive funds directly to your bank account. Some lenders may even fund as soon as the same or next business day.
Can I qualify for a personal loan with bad credit?
Yes, you can still qualify for a personal loan with bad credit. However, it might be more difficult. Some lenders, like Upgrade and Upstart (both Credible partners), use alternative factors such as your income, job history, and even education (in addition to your credit score) to determine your eligibility for a personal loan.
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Meet the expert:
Seychelle Thomas
Seychelle Thomas (she/her) is an ex-banker of seven years turned personal finance writer. She's a Nav-certified credit and lending expert who is passionate about empowering people to make smart financial decisions. In her writing, she explores a variety of debt consolidation, budgeting, credit, and lending topics.
