Should you take out a loan to pay off credit card debt?

Written by: Melanie Lockert
• Updated •6 min read • Leer en español
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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.

In a Nutshell

Taking out a loan to pay off credit card debt may help you pay off debt faster and at a lower interest rate. But you might only qualify for a low interest rate if your credit is good. And personal loans can come with fees that may offset any interest savings.
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Considering a personal loan to pay off credit card debt?

Some personal loans offer lower interest rates than credit cards. So consolidating your credit card debt with a personal loan may save you money on interest and potentially help you get out of debt faster.

Read on to learn about the potential pros and cons of a personal loan for debt consolidation as well as possible alternatives.

Benefits of using a personal loan to consolidate credit card debt

Using a personal loan to pay off credit cards may make sense in certain situations. Here are some of the potential benefits.

Lower interest rates

Personal loans tend to offer lower interest rates than credit cards. The average annual percentage rate for credit cards was 21.51% in March 2024, while the average rate for a 24-month personal loan was 11.92%, according to the Federal Reserve. Consolidating your credit card debt into a personal loan with a lower rate could help you save a significant amount of money in interest.

But keep in mind that lenders typically have minimum loan amounts of $1,000 to $5,000. If your debt is below this range, a personal loan may not be the right fit.

Reduced chance of missing a payment

Multiple credit card balances means making multiple payments each month. Consolidating all of your card debt into a personal loan means just one fixed monthly payment to remember. This can reduce the chance that you’ll miss a payment, which can negatively affect your credit.

Improved credit scores

Applying for a personal loan will likely result in a hard inquiry, which can initially hurt your credit. But in the longer term, a personal loan could boost your credit in a couple of ways. First, a healthy mix of account types, such as loans and lines of credit, can help build your scores.

Second, using a personal loan to pay off one or more credit cards can help improve your credit utilization — your total credit card balances divided by your total card limits. Having a lower credit usage ratio (generally, below 30%) can help increase your score.

Discover

Discover’s loans come with no origination fees, and there are a wide variety of loan terms to choose from. If you want to consolidate debt with a personal loan, Discover will pay your creditors directly. But take note: You won’t be able to apply with a co-signer.

LightStream

Only borrowers with good-to-excellent credit can qualify with LightStream, but the lender offers competitive interest rates and a rate discount for autopay. Unfortunately, there’s no prequalification process available.

Payoff

Happy Money’s credit card debt consolidation loan, known as the Payoff loan, doesn’t come with prepayment penalties or late fees, but it has an origination fee. You must have a credit score of 640 or higher to qualify with no delinquencies, so the loan won’t be the right fit for everyone.

Downsides of using a personal loan to pay off credit cards?

Your monthly payment may be higher

With a personal loan, your monthly payments may be higher than the minimum monthly payments on your credit card, even with a lower interest rate. Plus, with a personal loan, you’re signing up for these monthly payments for a set number of months, often multiple years.

Use a loan calculator to see how much your loan payments might be.

Your loan may come with fees

Fees can add to the cost of your loan and eat into whatever you might be saving on interest. Some lenders charge loan-origination fees for processing your new loan. Typically, the origination fee is a small percentage (generally 6% or less) of the total loan. This fee may be included in the loan amount — which means you’d be paying interest on the fee as well.

Also, watch out for prepayment penalties, which are additional fees that lenders may charge for paying off your loan early.

You could end up in greater debt

If you continue to use your credit cards after taking out a personal loan, you’ll rack up even more debt. Before accepting a loan offer, make sure the monthly payment fits into your budget, and create a plan to avoid using your cards.

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

The first step to getting a personal loan to pay off credit card debt is checking your credit scores and comparing lenders. Getting pre-qualified for a personal loan is a great way to estimate what your monthly payment might be. Once you find a lender that works for you, apply for your loan. Once you’re approved, you can start paying off your credit card debt with the funds and start paying your monthly personal loan payments.

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

There’s no one-size-fits-all solution for chipping away at credit card debt. Apart from personal loans, here are some other potential ways to consolidate your card debt.

Balance transfer credit card

Balance transfer cards can be a good alternative to personal loans if you’re trying to pay off credit card debt. With a 0% intro APR card, you would be able to transfer your credit card debt to a new credit card and then you would have a set amount of time to pay off the debt with no interest. 

Of course, this is only true if you’re able to transfer all of your balances and you pay off your balance before the introductory APR period expires.

Home equity loan

If you own a home, a home equity loan may be an option. With this type of loan, you borrow money by tapping into the equity you have in your home. While a home equity loan may come with a lower interest rate than a personal loan, you risk losing your home if you can’t repay the loan.

401(k) loan

If you have a 401(k) plan, you may be able to borrow against it. But these types of loans come with substantial risks, so be sure to consider all of your options before opting for one.

As with other loans, you’ll need to repay a loan from your 401(k) — with interest — within a set loan term (usually no more than five years). But because you’re borrowing your own money, you’ll be paying yourself back.

Keep in mind, though, that some plans don’t allow participants to make plan contributions while you have an outstanding loan. That means you could miss out on years of saving and any matching contributions your employer offers.

FAQs about getting a loan to pay off credit card debt

Can I borrow money to pay for my credit card?

Yes, a personal loan for debt consolidation may be able to help you pay off your credit cards while saving on interest. You may also be able to borrow money in the form of a balance transfer card.

Is it a good idea to take a loan to consolidate credit card debt?

Like many financial decisions, there are pros and cons when it comes to taking out a loan to consolidate credit card debt. A loan may offer lower interest rates than your current debt and a reduced chance of missing a payment. It may even help improve your credit scores in the long run. That said, a loan may also come with a higher monthly payment, additional fees, and the possibility of going deeper into debt. It’s important to consider all the information and your specific circumstance before deciding to take out a loan.

Will getting a personal loan to pay off credit cards hurt my score?

Applying for a personal loan to pay off your credit card debt can result in a hard inquiry, which could cause a temporary ding to your credit scores. But in the long term, paying down existing debt (and not taking on any new debt) will help reduce your credit utilization, which has a bigger impact on your scores. Lower credit utilization will help boost your scores.

Next steps

If you decide that a personal loan is the right option for you, make sure you do your homework: Check your credit scores, compare loan rates, read the terms and conditions, know your budget, and be on the lookout for costly fees. Before taking out the loan, you may want to try to negotiate the debt with the credit card company to lower the overall amount owed.

If you’re not sure a loan or balance transfer card is a fit for you, consider other ways to pay down your debt, such as the snowball or avalanche method. Debt settlement or credit counseling may also be options, but it is important to understand what each entails before making any decisions to move forward.

About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been f… Read more.