Using a Personal Loan to Pay Off Credit Card Debt
High credit card interest can make balances hard to shrink. A personal loan may offer a lower rate, one fixed monthly payment, and a clear payoff date.
Why Credit Card Debt Can Be Hard to Pay Down
Credit cards provide flexible access to money, but that flexibility can make larger balances difficult to eliminate.
When balances carry over from month to month, interest continues to accumulate. If someone is only able to make minimum payments, a significant portion of each payment may go toward interest instead of reducing the balance.
A personal loan approaches the debt differently.
Instead of carrying several revolving credit card balances, a borrower may use a personal loan to pay off one or more cards and then repay the loan through scheduled monthly payments over a set period.
For someone who qualifies for a lower rate, this may reduce interest costs and create a clearer path toward paying off the debt.
Key Takeaways
- A personal loan can be used to pay off one or several credit card balances.
- Many personal loans offer fixed rates and scheduled monthly payments.
- The strategy works best when the new loan costs less than the credit card debt it replaces.
- Credit history, income, existing debt, and other factors can affect the rate offered.
- Origination fees and total repayment costs should be included when comparing loans.
- Paying off cards with a loan only helps long term if new balances are kept under control.
How Paying Off Credit Cards With a Personal Loan Works
A borrower receives a personal loan and uses the proceeds to pay off existing credit card balances. Depending on the lender, funds may be deposited into the borrower’s account or sent directly to creditors.
After the cards are paid, the borrower is left with one personal loan instead of several revolving balances.
That may provide:
- One monthly payment
- A set repayment term
- A defined payoff date
- A fixed interest rate with many loans
- Potentially lower interest costs
The goal is not simply to move debt from one account to another. The new loan should improve the borrower’s overall repayment situation.
The Potential Advantage of Lower Interest
Credit cards can carry high interest rates, particularly when balances remain unpaid for long periods.
Personal loan rates vary, but some borrowers may qualify for an APR below what they currently pay on their cards. If that happens, more of each monthly payment can go toward reducing debt instead of covering interest.
A personal loan is not automatically cheaper, however.
Borrowers with weaker credit may receive higher rates, and some lenders charge origination fees. A longer repayment term can also reduce the monthly payment while increasing the total interest paid.
That is why the APR and total repayment cost matter more than the monthly payment alone.
One Payment Can Simplify Repayment
Someone carrying several cards may be managing multiple:
- Minimum payments
- Interest rates
- Due dates
- Account balances
- Credit limits
Replacing those balances with one personal loan can make repayment easier to track.
Many personal loans have scheduled monthly payments for a defined term. Unlike revolving card debt, the loan has an expected ending point as long as payments are made as agreed.
For borrowers who feel as though credit card debt never ends, having a specific repayment schedule can be valuable.
When a Personal Loan May Make Sense
Using a personal loan to pay off credit cards may be worth considering when:
- Several cards carry high interest rates.
- The borrower can qualify for a lower-rate loan.
- Multiple payments are difficult to manage.
- A fixed payoff schedule would make budgeting easier.
- The new monthly payment fits the household budget.
- There is a plan to avoid rebuilding the card balances.
The strategy may be less attractive if the new APR is similar to current card rates, fees erase much of the savings, or the repayment term stretches the debt out for too long.
What Lenders May Consider
Personal loan requirements vary by lender.
Common factors can include:
- Credit score and credit history
- Income
- Existing monthly debts
- Debt-to-income ratio
- Requested loan amount
- Repayment term
- Recent borrowing activity
Borrowers with stronger credit profiles generally have access to more competitive rates. Those with less-than-perfect credit may still find options, but the potential savings compared with credit cards may be smaller.
Compare the Whole Loan
Before choosing an offer, borrowers may want to compare:
APR. This provides a broader view of borrowing costs.
Origination fees. Some lenders charge fees that can reduce the amount received or increase the effective cost.
Monthly payment. The payment should fit comfortably within the budget.
Loan term. Longer terms may reduce the monthly payment but increase total interest.
Total repayment amount. This can show whether the new loan actually improves on the existing debt.
Bankrate provides a useful comparison of personal loans and credit cards, including repayment structure, interest, and borrowing flexibility.
Check Offers Before Making a Decision
Rates and fees can vary considerably between lenders.
Some lenders allow borrowers to check estimated terms through prequalification before submitting a full application. Borrowers should verify whether a lender uses a soft or hard credit inquiry at each stage.
Before comparing offers, it can help to list:
- Each credit card balance
- Each card’s APR
- Current monthly payments
- Total debt
- Proposed personal loan APR
- Origination or other fees
- Proposed monthly payment
- Total repayment cost
Experian provides additional information about what borrowers may want to consider when using a personal loan to consolidate existing debt.
Don’t Let Paid-Off Cards Become New Debt
Once a personal loan pays off existing credit card balances, those cards may once again have available credit.
If large balances build up again, the borrower could end up carrying both the personal loan and new credit card debt.
That is why the loan should be paired with a plan for future card use. That may include limiting new charges, paying new purchases in full when possible, or using cards only for planned expenses.
NerdWallet offers a broader look at using personal loans to consolidate credit card balances and the factors borrowers may want to compare.
Personal Loans vs. 0% Balance Transfers
A personal loan is not the only way to lower the cost of credit card debt.
Some borrowers may qualify for a balance-transfer card offering a 0% introductory APR for a limited period.
A balance transfer may work well for someone who can repay the debt during the promotional period.
A personal loan may appeal more to someone who:
- Needs more time to repay
- Has a larger amount of debt
- Wants predictable monthly payments
- Prefers a defined repayment schedule
The better option depends on available rates, fees, credit profile, amount owed, and how quickly the balance can realistically be repaid.
The Bottom Line
High-interest credit card balances can be frustrating because regular payments may not reduce the debt as quickly as expected.
A personal loan may offer another approach.
By replacing revolving card balances with a structured loan, some borrowers may be able to lower interest costs, simplify several payments into one, and establish a clearer date for paying off the debt.
The key is to compare the actual numbers. If the new loan offers a lower overall cost, an affordable payment, and a repayment schedule that fits the budget, it may provide a more manageable way to move beyond high-interest credit card debt.