Key findings
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Using a personal loan to pay off credit card debt can save on interest costs and simplify monthly payments.
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Personal loans are still a form of debt and it is important not to accumulate further credit card debt while paying off your personal loan.
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Alternatives such as balance transfer credit cards, negotiating lower interest rates, or seeking credit counseling can also be effective for managing credit card debt.
If you have credit card debt, you know how frustrating it can be to balance multiple credit card payments each month. Will you be able to make more than the minimum payment on each card? If so, how much more? Should you focus on paying off the card with the highest balance or the card with the highest interest rate?
Taking out a personal loan to pay off your credit card debt can help you solve many of these problems. Your personal loan can help you pay off your credit card debt in full. Since personal loans typically have lower interest rates than credit cards, you may even be able to save money on interest over time.
However, there are pros and cons to paying off credit card debt with a personal loan. Let’s take a look at the pros and cons and explore some options that could help you pay off your credit card debt without taking out a personal loan.
Reasons to use a personal loan to pay off credit card debt
Using a personal loan to pay off your credit card debt is a form of debt consolidation. There are many benefits to consolidating your debt into a single monthly payment. Here are three of the top reasons to use a personal loan to pay off your credit card debt.
Pay off credit card debt in full
If you have a lot of credit card debt, a personal loan can help you pay off your credit card debt in full. This measure not only gives you the peace of mind of being free of credit card debt, but it can also improve your credit score.
Keep in mind that using a personal loan to pay off your credit card debt is not the same as becoming debt free. After you pay off your credit cards, you will still have to repay your personal loan. However, paying off your high credit card balances and saying goodbye to the high interest fees that come with them can be a huge financial relief.
Lower interest rate
The average credit card interest rate is currently around 20.76 percent APR, but the average personal loan interest rate for people with good to excellent credit is between 10.73 percent and 15.50 percent APR. It’s also important to note that many credit cards charge significantly higher interest rates than average.
While your actual interest rate will depend on your credit score, the amount you borrow, and the terms of your loan, there’s a good chance a personal loan will have a lower APR than your credit cards, and most personal loans have fixed interest rates, so using a personal loan to pay off your credit card debt can often save you a lot of money in interest.
One-time monthly payment
It can be difficult to make multiple credit card payments each month. Personal loans allow you to consolidate your debt into a single monthly payment. This process can make it easier to plan ahead and set aside money for your monthly loan payment, which can also help you pay off your personal loan faster.
Remember: the more money you spend each month repaying your loan, the more interest you will save over time.
Possible disadvantages of paying a credit card with a personal loan
While there are many benefits to using a personal loan to pay off credit card debt, it also comes with some drawbacks—including the potential to fall back into credit card debt. Here are four of the biggest drawbacks of paying off a credit card with a personal loan.
Private loans are still debt
While personal loans can help you pay off your credit card debt in full, it’s important to remember that a personal loan is just another type of debt. Once your credit cards are paid off, you’re not debt-free – you still need to pay off your personal loan and make your monthly loan payments without incurring new credit card debt.
It is difficult to avoid using credit cards
If you’re used to using your credit cards to cover expenses you can’t pay back in full each month, it can be difficult to learn to spend within your means. If you’re using a personal loan to pay off credit card debt, it’s important to avoid accruing new credit card balances while paying off your personal loan. Otherwise, you could end up worse off than when you started.
If you use your credit cards to make small purchases and can pay them off in full each month, you may be able to continue using your credit cards after you pay them off with your personal loan. Otherwise, it may be a good idea to avoid using your credit cards altogether. Once your personal loan is paid off, you can start using credit cards again – but only for purchases that you can pay off in full at the end of each billing cycle.
Low interest rates are no guarantee
We’ve talked a lot about how personal loans tend to offer lower interest rates than credit cards, but that doesn’t have to be the case for everyone. If you have a bad credit history and happen to have a bad credit score, you may not qualify for a personal loan. And if you do get approved for a personal loan despite having bad credit, you may have to pay a higher interest rate than you’d like.
Fees for personal loans
Some personal loans have an origination fee. Keep this in mind when reviewing your options, and be sure to learn about any other fees that may be associated with a personal loan before you commit to it.
How to pay off credit card debt with a personal loan
If you want to use a personal loan to pay off your credit card debt, the following steps are required:
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AApply for a personal loan: Compare personal loan services, check eligibility requirements, and apply for the loan that seems like the best option for someone with your debt and credit score.
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Use the borrowed money to pay off your credit card debt: In many cases, the loan servicer will deposit the money from your personal loan directly into your checking account. Use this money to pay off your credit card debt – don’t use it for anything else. If you misuse the funds from your personal loan, you will have to pay off both your credit card debt and the personal loan.
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Pay off your personal loan as quickly as possible: Once your credit card debt is completely paid off, focus on paying off your personal loan as quickly as possible. Make sure you don’t incur any penalties for paying it off early, and pay as much extra money into your loan each month as you can afford.
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Avoid using your credit cards when repaying your personal loan: Don’t let yourself get back into credit card debt while you’re paying off your personal loan. Avoid using your credit cards and only make purchases that you know you can pay back in full each month.
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Use your credit cards for purchases you can afford: There’s no reason to give up using credit cards forever – there are so many benefits to using credit, including the ability to earn rewards on your purchases. However, try to only use your credit cards for purchases you can afford. Credit card debt is expensive, time-consuming, and way more trouble than it’s worth. That’s why many people take out personal loans to pay off their credit card debt and give themselves a fresh start.
Alternatives to managing credit card debt
Don’t want to pay off your credit card debt with a personal loan? Here are some alternatives that can help you pay off your credit card debt for good.
Apply for a credit card for balance transfer
A balance transfer credit card lets you consolidate your credit card balances onto a single card, which often makes paying off your credit card debt easier. Many of the best balance transfer credit cards offer you an introductory 0% interest rate for 12 to 21 months to help you pay off your balances while avoiding interest fees.
Negotiate a lower interest rate
If you believe that lowering your credit card interest rate will give you the edge you need to pay off your credit card debt quickly, try contacting your lender and asking for a rate reduction. Keep in mind that cardholders in good standing are more likely to receive a lower interest rate than cardholders who have a history of missing or late payments.
Ask about hardship programs
Credit card issuers offer hardship programs designed to help people who are unemployed or experiencing some other type of unexpected financial stress. Many of these programs include credit card payment forbearance, in which card issuers waive payments (and sometimes interest) for a set period of time. If you’re in the midst of a financial crisis, calling your credit card issuer and asking about hardship programs can help you avoid getting into unmanageable credit card debt.
Find out about credit advice
A reputable credit counseling service can help you manage your credit card debt and suggest options to help you pay off your debt faster. Whether you’re looking to create a budget or compare debt consolidation options, a credit counseling service can provide the advice you need.
Sign up for a debt settlement service
If you think you’ll never be able to pay off your credit card debt in full, a debt settlement service can help you negotiate a settlement with your credit card company. Debt settlement companies often charge high fees, and settling your debt instead of paying it off in full can hurt your credit score. But debt settlement is one way to deal with the kind of credit card debt you can no longer handle on your own—so include it in your list of options.
The conclusion
Taking out a personal loan to pay off your credit card debt can help you pay off your credit card debt in full and get your finances back on track. However, a personal loan isn’t the only option for people looking to pay off their credit card debt. A balance transfer credit card, for example, is another great way to consolidate your credit card balances into a single monthly payment.
Before taking out a loan, weigh all your options. Make sure the personal loan you’re considering offers lower interest rates than your credit cards, and have a plan for how you’ll pay off your personal loan without taking on new credit card debt. This is the best way to use a personal loan to pay off outstanding credit card balances.
