Should You Pay Off Credit Card Debt with a Personal Loan? What to Consider

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If you’re carrying credit card debt, you’re not alone. Americans topped $1 trillion in total revolving debt in 2018, according to the Federal Reserve.

That adds up to a lot of debt per person. The average credit card balance is $6,354, according to CompareCards.com (MagnifyMoney and CompareCards.com are both under the same parent company, LendingTree). When you factor in the average credit card interest rate of 15.54% — that’s a hefty monthly financial obligation.

An outstanding credit card balance can weigh your budget down for years, even decades, so you need to get a handle on it as quickly as possible. We’ll go over the pros and cons of using a personal loan to pay off credit card debt to determine if this could be the right move for your finances.

Paying off credit card debt with a personal loan

You may be able to use the proceeds of a personal loan to pay the debt on multiple credit cards. Here are 5 reasons you might go this route.

5 pros of using a personal loan to pay off credit card debt

1. You can consolidate payments
Managing multiple credit card accounts is hard work. When you’re trying to keep track of too many cards, it’s easy to confuse payment deadlines or accidentally miss them altogether. Paying off multiple credit cards with a personal loan consolidates that debt into one monthly payment, meaning fewer bills to worry about.

2. You could lower your interest rate
There’s no guarantee, but you’ll likely be able to secure a lower interest rate on your personal loan than you were paying on your credit cards. Your interest rate is determined by factors including credit score, debt-to-income ratio, employment status and credit history. Every lender has different borrowing criteria, but generally speaking, a high credit score and a low debt-to-income ratio will help you get a more competitive interest rate.

3. Your monthly payment could go down
If you’re able to secure a lower interest rate on your personal loan, it will likely reduce the amount on your monthly payments. This will allow you to enjoy a little extra room in your budget.

4. You might boost your credit score
If much of your credit portfolio is consumed by revolving accounts, diversifying the mix by taking on a personal loan will likely improve your credit score, according to the credit bureau Experian. Making monthly payments on a timely basis showcases your ability to manage debt responsibly. In most cases, the increase will take time and won’t be monumental, but it’s a step in the right direction.

5. You more likely to pay off debt faster
If you’re making the minimum payment on a substantial credit card balance, you could be stuck with the debt for decades. On the other hand, most debt consolidation loans have a term of 24 to 60 months. This can allow you to pay off the debt in a fraction of the time.

5 cons of using a personal loan to pay off credit card debt

1. You might not qualify for a personal loan
Lenders don’t issue personal loans to just anyone. In most cases, you’ll need a minimum credit score of 525 to even have your loan application considered. Other factors that will be taken into consideration include your debt-to-income ratio, employment status and credit history.

2. You may continue to rack up debt
Technically speaking, paying off your credit card balances with a personal loan frees up space to start racking up charges again. If you don’t completely trust yourself to cut ties with the plastic, it might not be wise to put the temptation out there. After all, debt consolidation is supposed to help improve your finances, not make them worse.

3. You might not get a lower interest rate
Personal loan interest rates are largely based on your credit score. Generally speaking, most rates are as low as 3.99%. It’s possible your credit card interest rate will be lower than the rate you’re offered for a personal loan. In this case, it wouldn’t make sense to proceed with debt consolidation.

4. Your monthly payment could increase
You pay for it with interest, but credit cards offer more repayment flexibility than personal loans. Since the latter is typically attached to a repayment period of 24 to 60 months, it’s possible you’ll end up with a higher monthly payment. If you don’t have a lot of extra room in your budget, this could be difficult to handle. The last thing you want is to default on the personal loan that was supposed to be getting you out of debt.

5. The loan might come with fees
Some lenders charge an origination fee, which is tacked on to your personal loan. In most cases, the fee costs 1% to 6% of the total loan amount. For example, if you had a $5,000 loan with a 2% origination fee, you would have to pay $100 upfront. Therefore, it’s possible the personal loan could be more expensive than your credit cards, even if you’re able to secure a lower interest rate.

How to find a personal loan to pay off debt

Shopping around to find the best offer for a personal loan is a must. MagnifyMoney offers a personal loan marketplace that allows you to quickly identify lenders that might meet your needs. You can personalize results by filtering for your credit score, desired loan amount and ZIP code.

What to consider as you review personal loan offers

When comparison shopping for a personal loan, take these key factors into account:

  • APR: Personal loan rates are as low as 3.99%. The rate you’re offered directly impacts your monthly payment and the overall interest you’ll pay on the loan.
  • Term length: Most personal loans come with a term length of 24 to 60 months, which is the amount of time you’ll have to pay the balance off in full.
  • Fees: Some lenders tack on additional fees to personal loans, including origination fees and prepayment penalties. These can increase the total cost of the loan.
  • Loan amount: Personal loans are generally available in sums ranging from $1,000 to $50,000. However, not all lenders are able to approve the amount of money you might need.
LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

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Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

3 alternatives to a personal loan

Taking out a personal loan to pay off credit card balances isn’t the only way to get out of debt.

If you don’t qualify for a personal loan or are unable to find one that meets your needs, here’s a few other options to consider.

1. Balance transfer credit card

A balance transfer allows you to shift your debt from a high interest credit card to one with a more competitive rate if you qualify. Many credit card companies even offer a 0% introductory APR, making it possible for you to pay less interest or none at all for a period of time, so you can pay your balance down faster. The MagnifyMoney balance transfer card marketplace can help you comparison shop to find the right credit card for your needs.

Pros

  • If you get a new card with an intro 0% APR and pay it off in full during the promotional period, you can eliminate all interest charges.
  • Your new card might have better perks than the old one.
  • It might be possible to get a card with $0 intro balance fees, making it possible to save even more money.
  • There’s no prepayment penalty.

Cons

  • In most cases, you’ll need good or excellent credit — often a 700 minimum credit score — to qualify for the most competitive offers.
  • You’re unable to transfer balances between the same credit card issuer.
  • Cards often come with a transfer fee, which is usually 3% of the total balance transferred.
  • If you don’t pay the balance in full during the introductory period, you could face a higher APR than you were paying on your old card.

2. Home equity line of credit

A home equity line of credit, commonly known as a HELOC, allows you to borrow against the equity in your home. Equity is the difference between what the home is worth and the outstanding debt on it. For example, if your property is valued at $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. Most lenders will allow you to borrow up to 85% of the current value of your home.

Pros

  • Borrow as much or as little as you need, up to your limit.
  • Repay only the amount used.
  • Interest rates are typically lower than credit cards and personal loans.

Cons

  • Interest rates are generally variable, which could cause your monthly payment to fluctuate.
  • You could be subject to annual fees, maintenance fees, transaction fees and closing costs.
  • Some lenders have a minimum borrowing or withdrawal amount.
  • If you fall behind on payments, you could lose your home.

3. Borrowing from a friend or family member

Nearly three in four Americans have borrowed money from a relative at some point in their lives, according to a survey from LendingTree, which owns MagnifyMoney. Unfortunately, more than one-quarter experienced negative consequences from the transaction. If you take this route, create a contract outlining the loan length, monthly payments and other terms, such as interest.

Pros

  • No credit check is involved, which is advantageous if your score isn’t the best.
  • If you have to pay interest, you’ll likely get a more competitive rate than would be offered by a traditional lender.
  • You won’t have to spend time comparison shopping for loans.

Cons

  • Missing payments could permanently damage your bond with a loved one.
  • Owing a friend or family member money might change the dynamic of your relationship.
  • Tensions could arise if the person needs the money before the expected loan payoff date.

5 questions to consider before tackling your debt with a personal loan

In many cases, using a personal loan to pay off credit card balances is a wise move, but not always. Ask yourself these questions to make sure this it’s the right choice for your unique situation.

Using a personal loan to pay off your credit cards opens the door to take on even more debt. You don’t want to end up with more debt than you had initially.

After paying your credit card(s) off, you might be ready to cut ties with them and close the account. But that might not be the best move — closing an account slashes your overall available credit, which can lower your credit score. If you close a credit card account that you’ve had for several years, it could also damage your length of credit history, which can also lower your credit score.

However, if you know you’ll charge the cards right back up, closing them could still be the better choice. Be honest with yourself and take the route that’s best for your unique situation.

Generally speaking, personal loans have an APR as low as 3.99%, but they can go much higher. It’s possible you could be offered a higher rate than you’re currently paying on your credit card. For example, if you’re offered a personal loan with an 30% interest rate, but the interest rate on your credit card is 14%, you’d likely end up paying more with the loan.

In addition to high interest rates, some lenders attach costs, terms and conditions to personal loans that add up fast. Origination fees, prepayment penalties and longer term lengths, to name a few, can take more money out of your wallet than you’re currently paying credit card companies. Read the fine print carefully to understand exactly what you’re getting into.

For example, many lenders don’t charge origination fees, but others tack on approximately 1% to 6% of the total loan amount. Some lenders will also hit you with a prepayment penalty if you decide to pay your loan off early. Others might offer a lower monthly payment, but with an extended term that will take longer to repay, ultimately costing you more than if you’d just stuck with a credit card.

If you’re currently making the minimum payments on your credit card(s), transferring the balance to a personal loan could result in a higher monthly payment. Debt consolidation loans must typically be repaid within 24 to 60 months, so if this causes your payment to increase, make sure you can handle the added financial burden.

The bottom line

Most Americans carrying a credit card balance — 77% — don’t realize they can take out a personal loan to pay down their debt, according to Marcus by Goldman Sachs. This can be a savvy way to get a handle on your credit card debt, and finally pay it off for good. When shopping around for a personal loan, take the time to compare multiple offers and carefully review all terms and conditions, to make sure you’re making the best choice for your finances.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Laura Woods
Laura Woods |

Laura Woods is a writer at MagnifyMoney. You can email Laura here

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