Should you use a personal loan to pay off credit card debt?

Credit card debt can rack up fast—especially if you’re only able to pay the minimum amount due each month. Using a personal loan to pay off credit card debt comes with several benefits like one monthly payment, potentially lower rates, and an end date to your debt. Plus, your credit score might get a boost when your credit card balances drop to zero. However, paying off credit card debt with a personal loan may not always make sense. Here’s what you need to know about using personal loans for credit card debt.

Should you use personal loans to pay off credit cards?

Managing credit card debt often comes with headaches, and you might be considering a personal loan to consolidate your balances. Commonly known as debt consolidation, using a personal loan can help you streamline multiple debts into one easy-to-manage payment—and sometimes pay it off faster and with less interest. No more keeping track of multiple due dates or scrambling to pay more than the minimum.

To consolidate your credit card debt with a personal loan, it’s best to shop around and compare rates with different lenders. Ideally, you want a personal loan with an interest rate lower than your existing credit cards. For instance, if your credit cards have an average interest rate of 20%, a loan with a 10% interest rate could help you save.

When comparing loans, consider the monthly payment amount, repayment period, and fees.

To get the most benefit, try to qualify for a loan that’s large enough to cover your credit card debt, with a lower interest rate, better terms, and little or no fees. Keep in mind that while you’ll no longer have credit card debt, a new personal loan is still considered debt. So it’s important to make your payments on time and understand how a debt consolidation loan can affect your credit scores.

Keep in mind, a personal loan may be able to help you pay off your credit card debt, but it won’t change your money habits. So if you tend to use your credit cards often, you could rack up new debt quickly after you pay them off. To avoid getting into credit card debt again, limit new spending and try to only charge what you’re able to pay off completely each month. If the temptation to overspend is overwhelming, it’s okay to take a break from using your credit cards for a while.^[1]

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

Before using a personal loan to pay off credit card debt, it’s important to weigh the pros and cons. Here’s a closer look at some of the advantages and disadvantages that come with paying off your credit card balances with a debt consolidation loan.^[1]

Pros	Cons
Fixed interest rate and terms: Personal loans often have a fixed interest rate that’s usually lower than credit card APRs.	May not get a lower interest rate: You may not always qualify for a lower interest rate than your existing credit cards.
Single monthly payment: Streamline multiple payments into one easy-to-remember loan payment, which may be lower than your combined monthly credit card bills.	Potential fees: Some lenders charge origination fees, prepayment penalties, late fees, and more, which affects the overall cost of borrowing.
Improved credit scores: Credit utilization, or your credit card balance relative to its credit limit, is an important scoring factor, so paying off your cards completely might boost your credit scores.	Potential to overspend: It may be tempting to rack up charges on the cards you pay off, which could result in a costly cycle of debt.
Quick loan processing: With online lenders, like LendingClub Bank, the loan typically has a fast turnaround time from application to funding.	You still have debt: Although potentially less costly than credit card debt, personal loans are still a type of debt.

Example of using a personal loan to pay off credit card debt

To see how if using a personal loan for credit card debt makes financial sense, it’s important to run the numbers.

Let’s say you have three credit cards with a total balance of $15,000 and an average 27% APR. You decide to consolidate the debt using a personal loan, which has a three-year term, a 14% interest rate and a monthly payment of $512.66. At the end of three years, you’d pay a total of $3,455.92 in interest costs.

If you decided to instead keep the debt on the credit cards and put the same $512.66 toward the balances each month, it would take a little more than four years to clear the debt, and you’d pay $9,744 in interest.

Between the two strategies, the debt consolidation loan helps you save about $6,290 in interest and gets you out of debt quicker. When using a personal loan to pay off credit cards makes sense Using a personal loan to clear your credit card debt may be a good idea in the following situations:

You qualify for a lower interest rate. Personal loans generally have lower i nterest rates than credit cards, so you may qualify for a lower rate, especially if your credit score is in good shape.
You want to consolidate your debt. If you’re tired of juggling multiple monthly payments, a debt consolidation loan can help you make the switch to one simple monthly payment.
You plan to pay off your credit card balances in full. If you’re working on becoming free of credit card debt, a personal loan is a commonly used strategy to bring credit card balances to zero.

When using a personal loan to pay off credit cards doesn’t make sense

While a personal loan can be used to pay off a credit card, it may not be the best option in every situation. Here are some scenarios when you may be better off skipping a personal loan.^[2]

You have a small amount of credit card debt. If your debt can be paid off over a short time, consider using the debt snowball or debt avalanche methods to pay off your cards.
Your spending habits need work. If overspending is an issue, try to improve your money management skills and learn how to stick to a budget. This strategy may help you avoid an ongoing cycle of racking up your cards and using a loan to pay them off.
Your debt feels overwhelming. If you can't afford to pay off your debt, even with a loan, a nonprofit credit counselor may be able to help you stop collection calls with a debt management plan.

The bottom line

Credit cards are a convenient financial tool to pay for day-to-day expenses or an unexpected emergency. While it’s generally best to pay your credit card balances in full every month, it’s not always possible. High interest rates can make your debt climb fast—and if you’re late on a payment, you could get charged a late fee and take a hit to your credit. Paying off your credit cards with a personal loan can be a savvy financial move. Just be sure you’ve considered all the pros and cons before you apply.

Consumer Financial Protection Bureau. “What do I need to know about consolidating my credit card debt?”
Consumer Financial Protection Bureau. “What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?”