Everything You Need to Know About Personal Loans to Pay Off Credit Card Debt

Pay Off Credit Cards calendar note

Credit card debt that has ballooned out of control can be extremely frustrating, particularly if you have debt across multiple credit cards. If you do carry credit card debt, you’re not alone: Experian reports that almost all (95%) of adults have a credit card open and there is over $756 billion in outstanding credit card debt in the U.S.

Balancing and managing multiple credit card payments is not only logistically difficult, but it can also leave you wondering if you’ll be able to pay off anything more than the minimum amount on each card every month. Determining how to pay off your credit cards may also present challenges. Does it make sense to pay off the card on which you owe the most? Or should you focus on paying off the card with the highest interest rate?

All of these stressors and questions can be minimized and simplified by taking out a personal loan to pay off credit card debt. We’ll look at the benefits of taking out a personal loan to pay off credit card debt — as well as some of the questions to keep in mind if this is the path you choose to take.

The Benefits of Using a Personal Loan to Pay Off Credit Card Debt

A personal loan can help you pay off your credit card debt completely — often at a much lower interest rate than most of your credit cards, enabling you to save money in interest over the long haul. We’ll explore some of the other benefits of using a personal loan to pay off credit card debt below.

Pay Off Credit Card Debt Completely

One of the benefits of using a personal loan for consolidating credit card debt is that you can pay off your credit card debt in full. This is beneficial for those who have high credit card balances across several high-interest credit cards. A personal loan usually has much more favorable interest rates, enabling you to consolidate your debt under one, lower-interest loan. This saves you money over time as you now only have to pay back the low-interest personal loan rather than a slew of high-interest credit cards. Better yet, you may even see a bump in your credit score.

Simplify With One Monthly Payment

When you owe money on multiple credit cards, keeping everything straight can be a challenge. Debt consolidation via personal loans can greatly simplify your life by merging multiple payments into a single monthly payment. Instead of worrying about which percentage of money to allocate to each individual credit card every month, you can budget for one payment. Staying organized can help you pay off your accumulated personal debt more quickly.

Save With Lower Interest Rates

Personal loans tend to have lower interest rates than credit cards. According to U.S. News, the average interest rate for credit cards currently hovers between 15.56% and 22.87%, depending on the type of credit card. Alternatively, you can enjoy the following personal loan interest rates, depending on what your credit score is:

Credit Score chart

Consolidating debt from credit cards that have 21% Annual Percentage Rates (APRs) down to personal loans that have close to 11% APRs can make a big difference in how much interest you pay over time. Of course, the interest rate you get will depend upon your credit score, but generally speaking, personal loans offer much lower APRs than credit cards.

Tip: To learn more about credit scores and what they mean, see our recent article here.

What to Keep in Mind When Consolidating Credit Card Debt With a Personal Loan

Consolidating credit card debt with a personal loan can be a great first step on your journey toward financial freedom. That said, there are some important considerations to take into account before you get started. Debt is debt, no matter which way you slice it, so it’s important to consider some of the realities of taking out a personal loan. 

  • A Personal Loan is Still Debt — While it’s true that taking a personal loan can be one way to pay off your credit card debt completely, a personal loan is still considered debt. So while you can often enjoy lower interest rates through a personal loan, you’ll still need to be cognizant that it is a debt that requires you to make monthly payments to pay off. 
  • Financial Discipline Takes Time — Often, debt is acquired when a person struggles to spend within their means. Even if you take out a personal loan to consolidate your credit card debt, it may be difficult to break old habits and avoid charging things to your credit cards. Unfortunately, creating new credit card debt while also taking out a personal loan may leave you in a worse financial lurch than you started with. Learning positive financial habits can help you avoid taking on new credit card debt; however, those habits often take time to build. 

Steps to Paying Your Credit Card Debt Off With a Personal Loan

If you’re ready to take the next step in consolidating credit card debt, follow the steps outlined below to get started.
  1. Apply for a personal loan — Step one is to apply for a personal loan that meets your needs. You’ll want to compare different lenders and types of personal loans and be sure that you meet any requirements. You may want to check your credit score before applying so you have a better idea of the type of APR you may qualify for. 
  1. Apply loan money toward credit card debt — The next step is to take the funds you received from the personal loan (which are typically deposited right into your checking account) and apply it to your outstanding credit card balances right away. 
  1. Start paying off the personal loan — You’re halfway there! You no longer have credit card debt, but you do have to pay off your personal loan. Paying this down as quickly as possible can save you money on interest over time. Just be sure the loan you have doesn’t penalize you for early repayment and put as much money toward monthly loan payments as you can afford.
  1. Make positive financial decisions moving forward — Now that you’ve consolidated your debt under your personal loan, you want to avoid charging unnecessary purchases to your credit cards. Only use credit cards to pay for necessities and only if you can pay them off in full every month.
How To Use a Personal Loan to Pay off Credit Card Debt
Using a personal loan to consolidate and pay off credit card debt can be a wise financial decision for many people. Each person’s financial situation is unique, so consider both the benefits and other important factors when making a decision that is best for you.

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