Personal Loans

Is It Good to Pay Off Credit Card Debt with a Personal Loan?

So you realize you shouldn’t rack up credit card debt, have stopped spending, and are paying down your balances. You’re on the right path. The problem is, your interest rates are high and it’s taking too long to pay off your balances.

Well, there may be a better repayment strategy: a debt consolidation loan.

Instead of making payments to your credit cards each month, you can get a personal loan to pay off all of your card balances. Afterward, you will have just one loan with one lender.

But will this strategy be able to save you time and money? What benefits and drawbacks should you consider?

Let’s take a closer look.

Will a personal loan save you money on your credit card debt?

According to the Federal Reserve, the interest rate on a 24-month personal loan in August of 2018 was 10.12% while the rate on credit card plans was 14.38%.

However, whether it is cheaper to pay off your credit card debt through your credit card companies or via a personal loan depends on your personal credit and financial situation.

Here is how to figure out which is better for you.

Credit card cost analysis

Take note of the interest rates on your credit cards. If you have more than one card, write the rate for each card and note the cumulative average.

Next, look at your payment history and your budget. How much can you pay each month toward your debt? With that payment amount, how long will it take you to repay your debt?

Now use a credit card payoff calculator to find out how much you are going to spend overall to pay off your credit card debt.

Here’s an example:

Say you have the following two credit cards:

Credit card #1: 15% APR, $5,500 balance.

Credit card #2: 25% APR, $5,000 balance.

Cumulative APR average: 20% APR.

Assume you have $300 per month to pay towards your credit card debt; $150 per card.

Credit card #1 will take approximately 50 months to pay off and will cost you $1,903 in interest.

Credit card #2 will take approximately 58 months to pay off and will cost you $3,625 in interest.

The total payoff time is 58 months and the total cost is $5,528. That is about 53% of the loan amount.

Personal loan cost analysis

Next, it’s time to find out how much a personal loan is going to cost you. Many personal loan lenders offer online applications that are easy to fill out and which don’t hurt your credit score.

Further, SuperMoney has a personal loan engine that enables you to check the rates from multiple lenders at the same time. Find out what personal loan rates and terms you can get.

Unfortunately, not everyone will qualify. If you don’t, a personal loan won’t be an option immediately. Although, you can continue to work on your credit and check other consolidation options.

If you do qualify, review the offers to see if they can beat your credit card costs.

For example, if you could get a five-year personal loan for $10,500 at a 15% interest rate, your monthly payment would drop to $250 and your interest cost would drop to $4,487. You could save $50 per month and over $1,000 overall which would definitely make the move a good idea.


One important factor to note is that some personal loans come with origination fees. These often range from 1% to 6%. Be sure to double check if a loan has a fee and factor it into your cost.

The fee does have the potential to offset the savings you would otherwise get. For example, a $10,000 loan with a 5% origination fee could cost you $500.

If the personal loan can cut down on your monthly and overall borrowing costs, it can be a good idea. This applies even if the loan doesn’t cover all of your debt.

But before you make the decision, consider these benefits and drawbacks.


Here is a list of the benefits and the drawbacks to consider.

  • Save money on interest payments.
  • Pay the debt off faster.
  • Improve your credit score
  • Simplify your payments into a consolidated loan
  • You must meet eligibility requirements.
  • There is the risk you get deeper into debt.
  • Short-term personal loans may not be as affordable.

Benefits of paying your credit card debt with a personal loan

The benefits you can reap from getting a personal loan to pay off credit card debt can include:

Saving money

If you can get a personal loan that has a lower borrowing cost than the cumulative borrowing cost of your credit cards, you can save on your repayment.

Paying off the debt faster

Credit card repayments can leave you feeling like you are running on a hamster wheel. They don’t have a set schedule to pay off your balance as the credit line is revolving.

While you can set your own schedule to pay it off, you are only required to make the minimum payment and can always reuse the credit line if you want.

A personal loan is an installment loan with a set term. That means you have an amount that you are paying off in a specific amount of time.

There is a defined end-date when your debt will be gone. This can help you to pay it off faster, assuming you choose a shorter loan term.

Plus, if you can get a lower interest rate, that will speed repayment up even more.

Improving your credit score

When determining your credit score, credit scoring models look at the mix of account types you have. A personal loan is an installment loan type while credit cards are a revolving loan type. It’s good to have both. If you don’t have any installment loans yet, adding one can help to improve your credit mix and score.

Credit scoring models also look at your credit utilization, which is the amount of a credit line that is unused in relation to the total amount available. The more credit available, the better for your credit score. Being so, paying down the balances can help to give your score a boost.

Consolidate debt

If you have more than one credit card with a balance, then consolidating the debt into one loan can simplify your payment management. You will only have to worry about one payment, one balance, one interest rate, one payment date, etc.

The above benefits can make it more advantageous for you to move your credit card debt to a personal loan lender. However, there are some drawbacks to consider as well.

Drawbacks of paying your credit card debt with an installment loan

Following are a few drawbacks you should consider.

You need to qualify

As mentioned above, you need to get approved for a personal loan for this strategy to work. Getting approved depends on your personal credit and financial history.

Many lenders exist which serve a wide range of credit classes, from bad to excellent. However, the most attractive rates will only be available to applicants with good-to-excellent credit.

Unfortunately, not everyone will qualify. Further, attractive rates and fees that make the switch worth it are often not available to those with lower credit scores and income levels.

However, it doesn’t hurt to apply and find out. You won’t know for sure until you run the numbers.

Can lead to more debt

Another drawback to consider is the potential to rack up more debt. By paying off your credit cards and moving the debt to a loan account, you will have credit available on your credit cards again.

Closing your credit card accounts can negate the benefits to your credit score, so you will likely want to leave them open. This can lead to the temptation to use the credit cards again. If you do, you can quickly end up with double the debt.

It will be important to ensure that you can exercise self-discipline to leave the credit cards unused and pay off the loan.

Short or long loan terms

A personal loan will not be cheaper or most effective in every situation. A few scenarios could cause problems with the personal loan option.

For example, if your loan term is too short, your monthly payments may exceed your budget. While helping you save overall, it won’t work if the monthly payments are too high. And if your loan term is too long, you may save monthly but pay more in the long run.

If you can’t get a personal loan that will help you save while suiting your budget, it will be better to leave your debt where it is.

Should you move your credit card debt to a personal loan?

To find out if you should go ahead with the personal loan option, you’ll need to get prequalified with a few lenders. By doing so, you’ll get the rates and terms you need to figure out if it makes the best financial sense.

If it does, you will have to ask yourself if the available credit on your credit cards is going to be too much of a temptation. If it is too much but you want to get the personal loan, you can close them (although, it’s not recommended because of the impact on your credit). If you are confident you can maintain self-discipline, then you are ready to move ahead.

Before choosing a lender, be sure to vet it thoroughly. Read in-depth reviews about the offerings and see what past customers say about their loan experiences. Once you find a reputable lender with the right offer, you can pull the trigger and streamline your path to being free of credit card debt!

Review and compare personal loan lenders.