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

Ben Luthi Written by:
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A young woman with long brown hair is lying on her sofa, credit card in hand, looking at her tablet, as suns streams through the large windows behind her.Image: A young woman with long brown hair is lying on her sofa, credit card in hand, looking at her tablet, as suns streams through the large windows behind her.
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Key Takeaway: Personal loans are a good option to consolidate your credit card debt. They often have lower APRs than credit cards and you’ll have a fixed monthly payment to make budgeting easier. Keep in mind that personal loans can have fees, so make sure that the savings outweigh any costs.

If your credit card balances are starting to feel unmanageable, a personal loan might be one way to get them back under control.

Using a personal loan to pay off credit card debt can be worth a look, since personal loans often have a lower APR than credit cards. A loan to pay off credit card debt could cut your interest and leave you with one fixed payment instead of several. This is why personal loans are sometimes called debt consolidation loans.

Below, we’ll cover the pros and cons, how the process works, and a few alternatives in case a personal loan isn’t the right fit.

What are the pros and cons of using a personal loan to consolidate credit card debt?

A personal loan for debt consolidation comes with a few clear upsides and some real trade-offs. They’re worth weighing side by side before you move forward. Here’s how the pros and cons break down.

Pros

  • A potentially lower APR — On average, personal loans charge a lower annual percentage rate (APR) than credit cards, so consolidating could reduce the interest you pay.
  • A fixed term and clearer timeline — Most personal loans have a set repayment term, so you’d know exactly when your debt would be paid off.
  • One simplified monthly payment — If you have multiple credit card balances, combining them into one loan gives you a single fixed payment each month, making it easier to manage your debt.

Cons

  • Fees can eat into your savings — Some lenders charge origination fees ranging from 1% to over 10%, which can offset the interest you’d save. Be sure to read the fine print before you commit.
  • Your monthly payment might be higher — A loan’s fixed payment could top your current minimums, even at a lower rate, so make sure it fits your budget.
  • You could end up deeper in debt — Paying off your cards frees up credit, and if you keep charging your credit cards, your debt situation could spiral out of control.

How to pay off credit card debt with a personal loan?

A personal loan gives you a lump-sum disbursement, which you can use to clear your card balances. Then, you’ll repay the loan in fixed monthly installments. Here’s how the process generally works:

  1. Check your credit and compare lenders. Personal loans are available to borrowers across the credit spectrum, but you’ll generally need good credit or better to qualify for a favorable APR. Check your credit scores to see where you stand.
  2. Compare lenders. Many lenders let you prequalify with a soft credit check, allowing you to compare loan terms with no commitment. But prequalifying isn’t a guarantee of approval, and your final terms could differ after a full application.
  3. Choose an offer and apply. Once you’ve found a loan that fits your budget, submit a formal application with the lender. This typically results in a hard inquiry, which can temporarily hurt your credit.
  4. Pay off your credit cards. Some lenders pay your card issuers directly. Others deposit the funds into your bank account so you can pay the cards off yourself. Either way, put the money toward your balances right away.
  5. Make your loan payments on time. On-time payments are one of the biggest factors in your credit scores, so consider setting up autopay or reminders to avoid missing a payment.
  6. Keep your card balances low. Try to resist running up new balances so you don’t end up managing two kinds of debt at once.

Alternatives to using a personal loan to pay off credit card debt

A personal loan is just one of several ways to consolidate or pay off credit card debt, and it’s a good idea to research and evaluate all of your options before moving forward. Here are some alternatives to consider.

  • Balance transfer credit card — A balance transfer card with a 0% intro APR lets you move your balances to one card and pay them down interest-free for a set window, often around 12 to 21 months. Watch for a balance transfer fee (commonly 3% to 5%) and the regular APR that applies once the intro period ends.
  • Home equity loan or HELOC — If you own a home, you may be able to borrow against your equity, sometimes at a lower rate than a personal loan. That said, closing costs can be high, and your home is the collateral, so falling behind could put you at risk of foreclosure.
  • Accelerated debt payoff methods — You don’t necessarily need a new loan to pay down credit card debt. With the debt avalanche and snowball methods, you make the minimum payments on all cards while applying extra payments toward your highest-rate balance or your smallest balance, respectively. Once that’s paid off, you roll that payment into your next debt and continue the process until you’re debt-free.
  • Debt management plan — A nonprofit credit counselor may be able to help you set up a debt management plan, which combines your payments into one and can sometimes come with a lower interest rate or payment. These plans include fees and typically take three to five years to complete. Also, you may be required to close your credit cards. 

Next steps

Using a loan to pay off credit card debt can be a practical way to simplify your payments and potentially save on interest, as long as the new rate and fees work in your favor and you avoid new card balances. 

Before you commit, run the numbers on the total cost, including any origination fee, so you know you’re coming out ahead. From there, you can check your credit scores and compare debt consolidation loans to see what you might qualify for.

FAQs about paying off credit card debt with a personal loan

It depends. A personal loan can be a good fit for larger balances you’ll need a few years to pay off, while a balance transfer card may fit smaller balances you can pay off during the 0% intro APR window, which typically lasts 12 to 21 months.

The initial hard inquiry can damage your credit score temporarily, though usually by only a handful of points. That said, paying off your cards can lower your credit utilization rate, which may help your credit, as can making your loan payments on time.

Credit score requirements vary by lender, and some specialize in working with bad-credit borrowers. That said, you may need good credit or better to qualify for a low enough interest rate to make consolidation worthwhile.

Yes. Paying off a card with a loan won’t close your credit card account, so it stays open and usable. The risk is that an open card can tempt you to continue to use it, leaving you with loan payments and credit card debt if you don’t pay in full.

The biggest risk is ending up deeper in debt. If you pay off your cards but keep making purchases that you don’t pay off, you could owe on both the cards and the loan. If you use a personal loan for debt consolidation, choose one with a monthly payment that fits into your budget and use your credit cards responsibly.

Not necessarily. Closing a card lowers your total available credit, which can push up your credit utilization rate and may work against your credit. If overspending is a real concern, though, the financial benefits of closing the account could outweigh the drawbacks.