Should I Get a Personal Loan to Pay Off Credit Card Debt?

Managing debt can be stressful, especially if you have several credit cards.

If you’re struggling, you may want to consider combining those multiple debts into a single loan.

Depending on your credit score, a personal loan might offer better terms and a lower interest rate than your credit cards — but there are some risks you’ll want to consider before you move your credit card balances onto a new loan.

Erika Taught Me

  • A personal loan is an unsecured loan (meaning no collateral is required) that you can use to consolidate credit card debt.
  • Personal loans often come with a lower interest rates than credit cards.
  • Having one regular monthly payment can make your debt more manageable.

. . .

Pros and Cons of Getting a Personal Loan to Pay Off Credit Card Debt

In many cases, replacing high-interest credit card debt with a lower-interest loan is a no brainer — you’ll save money and pay off the debt faster!

But there are times when it might not be in your best financial interest. Consider both the pros and cons before signing on the dotted line

Pro: Simplify your payments

Rather than managing several credit card payments each month, a personal loan requires you to only keep track of one.

This can make your debt much easier to manage.

Pro: Reduce your interest rate

Personal loans usually have much lower interest rates than a credit card. According to the Federal Reserve, rates on a two-year personal loan averaged 12.49% in early 2024. By comparison, the average rate on a credit card was 22.63% for the same period.

Moving your credit card balance onto a personal loan with a lower rate can reduce the lifetime cost of the loan, helping you pay it down faster.

READ MORE: How Does APR Work on a Credit Card?

Pro: Boost your credit score

Credit diversity, account history, and credit amount are all variables that contribute to calculating your credit score

When you open up a personal loan to pay off credit card debt, you’re adding a new loan type to the mix and increasing your available credit. 

This changes your credit utilization ratio and can increase your credit score.

But keep in mind that you may also see a temporary dip in your credit score when the lender does a credit check on your loan application. Once you start making on-time payments, that dip should go up again.

Con: You could fall deeper into debt

Remember, even though your credit cards are now down to zero, you’re still responsible for repaying the original debt! 

If you start wracking up new charges on your credit cards while repaying a new personal loan, you could end up with more debt than you can manage.

READ MORE: How to Budget: 5 Simple Steps

Con: Fees

Be prepared to pay an origination fee on your loan. This is an administrative fee that covers the cost of processing a personal loan. 

These fees are usually a percentage of your loan and can increase your debt in the short term. For example, taking out a $10,000 personal loan with a 5% origination fee will add $500 to your balance.

There may also be other fees, like prepayment penalties if you pay the loan off before your pre-set term is up. 

Con: Rates may not be great

You aren’t guaranteed to get the best-advertised rate on a personal loan. 

While lenders tout low rates, you might get an offer with a rate comparable to your existing credit card. This is especially the case if you have less-than-stellar credit. 

Add in fees, and a private loan could be more expensive than your existing debt.

When Should You Use a Personal Loan to Pay Off Your Credit Card?

A personal loan can be a good option if your credit card debt has high interest rates. If you have excellent credit and can get a better rate with a personal loan, that can save you money in the long run.

If you want to simplify your payments, that could be another reason to use a personal loan to pay off your debt. The loan will roll everything into one payment each month, making your debt much easier to keep track of.

A personal loan can also help if you want a predictable payment each month. Credit card payments vary based on your outstanding balance and interest rate, while a personal loan is usually fixed over a specific period. 

This can make planning easier, especially if you make inconsistent income from month to month.

READ MORE: How Does Debt Consolidation Work and Is It Right for You?

When not to use a personal loan to pay off your credit card

While lenders may promote a low rate, it’s not guaranteed that they’ll offer it. You could apply for a personal loan only to get stuck with a rate that isn’t much better than your credit card. If this is the case, don’t bother. 

Combined with the origination fee, repaying your debt could end up more expensive in the long run.

Also, while moving your credit card debt to a personal loan can help you repay your debt, that’s only if you stop using your credit card

If you keep using your card, you’ll risk putting yourself further into debt.

READ MORE: How To Pay Off Credit Card Debt

How To Choose the Right Personal Loan for Your Debt

Take stock of your financial situation. Understand your current debt burden — including all of your debts, not just your credit cards. 

Look at your monthly payments to make sure a personal loan is something you can afford.

When you know how much you want to borrow, shop around for the best possible loan terms. Look at the interest rate, term length, and if there are any prepayment penalties. Factor origination fees in, too.

Be sure to read the fine print as well. 

While using a personal loan to repay your debt might be good for your current financial situation, things can change. If you find yourself in a difficult position down the road, you’ll want to make sure you have options. Check the repayment terms to understand what you’re signing up for.

Consider the experience you want to have as well. Look for a lender who aligns with your financial habits. That might mean getting a loan where you currently bank because it’s more convenient, or reading reviews of their mobile app or customer service if it’s a new lender. 

Make it as easy as possible for you to pay off your debt for good.

Other Ways to Pay Off Credit Card Debt

A personal loan can be an appealing way to pay off your credit card debt, but it isn’t the only option. 

Here are a few others to consider:

  • Call your credit card company and ask for a lower rate. Sometimes, you may be able to negotiate a better rate based on financial hardship.
  • Look for a 0% APR balance transfer credit card. With a balance transfer card, you can carry a balance for up to 18 or 21 months with no interest — giving you time to pay it down.
  • Take out a secured loan, like a home equity loan or line of credit. Just remember that with these loans, your home becomes collateral — meaning if you default, the lender can take your home.
  • Reach out to a non-profit credit counseling service. These organizations offer debt management plans and can sometimes help you negotiate with your creditors for lower rates or reduced monthly payments. (Important: These are different from for-profit debt settlement services, which you should avoid!)

FAQs 

Does getting a personal loan to pay off credit cards help your credit score?

Credit utilization and credit mix are two factors that affect your credit score. Adding a personal loan to the mix — but not increasing the size of your debt — can lower your credit utilization ratio. This can boost your score.

Is a debt consolidation loan the same as a personal loan?

A personal loan is a type of loan you can use to consolidate your debt. Debt consolidation can include other loans like a balance transfer credit card or a home equity line of credit. 

A personal loan can be used for a variety of things beyond debt consolidation. You can use it to finance a trip or a more pressing need like a medical emergency.

TL;DR

A personal loan can be a great way to pay it off faster. By consolidating it into one loan with a lower interest rate, you can spend less overall and make it easier to keep track of your monthly payments.

Just remember to avoid using your credit card while you pay off the loan — otherwise, you’ll end up right back in debt again!

For more tips on getting out of debt and better managing your money, check out these episodes of the Erika Taught Me podcast:

. . .

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. Terms apply to American Express benefits and offers. Enrollment may be required for select American Express benefits and offers. Visit americanexpress.com to learn more.