Americans hold roughly $1.1 trillion in credit card debt and other revolving credit, according to April 2025 data from the Federal Reserve Bank of St. Louis. A personal loan can help pull you out of debt by lowering your monthly payments and the total amount of interest you’ll pay, but it isn’t the best fit for everyone. In this article, the MarketWatch Guides team explains the pros and cons of using a personal loan to pay off credit cards so you can decide if it’s the right option for you.
How a Personal Loan Can Help Pay Off Credit Cards
Using a personal loan for debt consolidation involves taking out a personal loan and then using the loan funds to pay off outstanding credit card balances. This leaves you with a single fixed monthly payment, often at a lower interest rate, so you could pay less in interest and pay your debt off faster.
Using a personal loan to pay off credit cards can be a smart move, but we recommend considering a few things before deciding to do it:
- Compare interest rates: If a personal loan’s interest rate is significantly lower than your credit card rates, debt consolidation could save you money. But if the rates are about the same, getting a personal loan to wipe out credit card debt might not be worth it once you factor in loan fees.
- Consider your total debt: If your credit card debt feels overwhelming and you’re struggling to stay on top of multiple monthly payments, a personal loan can provide a more manageable way to pay your debt off.
- Assess your financial stability: Taking on any form of debt — even if it’s a personal loan to consolidate your credit cards — is a significant financial decision. Make sure you’ll be able to make the monthly loan payments consistently to avoid hurting your credit.
Example of Using a Personal Loan To Pay Off Credit Cards
Say you have $10,000 in credit card debt spread across three cards, each of which has a 20% annual percentage rate.
- Card 1: A $2,000 balance with a minimum payment of $40 per month
- Card 2: A $4,000 balance with a minimum payment of $80 per month
- Card 3: A $4,000 balance with a minimum payment of $80 per month
If you only make the minimum payments on your credit cards, it would take you over nine years to eliminate your credit card debt. During that time, you’d pay roughly $21,680 total, with about $11,680 of that as interest payments.
Now, let’s say you consolidated that $10,000 in credit card debt into a personal loan with a 10% interest rate and a five-year term. Your monthly payment would be around $212, but you’d get rid of your loan debt in five years, and you’d pay $12,748 total, with $2,748 of that as interest payments. By consolidating your debt into a personal loan, you’d pay it off four years sooner and save nearly $9,000 in interest.
When Should You Use a Personal Loan To Pay Off Credit Cards?
If you have minimal debt or you plan to keep the same spending habits, a personal loan likely won’t help you pay off credit card debt in the long term. Consider setting stricter savings goals to pay off a smaller amount of debt and making a budget instead. However, there are some scenarios when using a personal loan to pay off credit cards can be a smart financial move.
If a Personal Loan Could Help You Avoid Bankruptcy
Failing to pay off substantial debts could lead you to consider bankruptcy, which should be a last resort as it negatively impacts your credit score for up to 10 years. In 2024, non-business bankruptcy filings increased by 15.5% to 481,350, according to the Administrative Office of the U.S. Courts. You may be able to avoid bankruptcy by getting a personal loan to make repaying your debts more manageable.
If You Have a High Interest Rate on Credit Cards
If you have high-interest credit cards, you’re likely paying a lot in interest charges each month. A personal loan can help you consolidate your debt into a single, lower-interest loan, which may save you money in the long run. Personal loans also generally have fixed interest rates (unlike most credit cards), which means your monthly payment would be the same no matter what. So if you’re concerned about falling behind on your credit card debt due to unpredictable payments, a personal loan can help you get back on track.
If You Have Multiple Credit Cards With Balances
If you have multiple credit cards with high balances, keeping track of them all can be overwhelming. Getting a debt consolidation loan can simplify your credit card payments and make it easier to manage your finances.
Pros and Cons of Using a Personal Loan To Pay Off Credit Cards
Using a personal loan to pay off credit cards can help you become debt-free, but we think you should weigh the pros and cons before making a decision.
Pros
Potentially lower interest rates: Personal loan interest rates are often lower than credit card interest rates, which can save you money over time.
Simplified payments: Consolidating credit card debt with a personal loan can simplify your payments and make it easier to manage your finances.
Fixed repayment schedule: Personal loans generally have a fixed repayment schedule, which can help you budget.
Potential credit score boost: Making on-time payments on your personal loan can help improve your credit score over time. Your credit-utilization ratio (the amount of credit you’re using in relation to how much credit is available to you) may also decrease, which can also raise your credit score.
Cons
Requires good credit: You typically need a good credit score to get a personal loan with the best terms. If your credit isn’t strong, you might get denied for a loan or be offered higher interest rates.
Possible fees: Some personal loans come with origination fees, prepayment penalties or other charges that can add to the cost of borrowing.
Risk of further debt: Transferring your credit card balance to a personal loan might tempt you to use those cards again, potentially leading to even more debt than before.
Factors To Consider When Choosing a Personal Loan
Before you opt for a personal loan to pay off a credit card, consider these factors:
When comparing personal loan offers, pay attention to interest rates, which vary depending on the lender and your credit profile. Generally, borrowers with good credit scores qualify for the lowest interest rates. Advertised rates are typically expressed as APRs, which include both the loan rate and any fees associated with the loan.
Even a small difference in loan rates can significantly affect the total amount you repay. Look for loans with low interest rates and compare APRs to see the total amount you’d be expected to pay.
Personal loan fees can include origination fees, prepayment penalties and late-payment fees.
- Origination fees: These are a percentage of your loan amount. They’re usually deducted from your loan amount before it’s deposited in your account, but some lenders add them to your loan balance.
- Prepayment penalties: You may be charged a prepayment penalty fee if you pay your personal loan off early.
- Late-payment fees: If you miss a payment or make a payment after the due date, your loan provider will likely charge a late-payment fee.
Look for a lender that provides flexible repayment options, such as the ability to make extra payments, change your payment due date or defer payments due to financial hardships. Having flexibility can help you manage unexpected changes in your financial situation and avoid late fees that could hurt your credit.
It can be helpful to choose a lender that has a good reputation for customer service. That way, you can contact someone if you have questions or concerns about your loan. One way to judge the level of customer support you’ll receive is to call a lender and ask questions before you take out a personal loan. Here are some things to think about:
- How long were you on hold?
- How responsive was the customer service agent you spoke to?
- How was the overall experience?
- Were you satisfied with the answers to your questions?
You can also go to websites such as the Better Business Bureau and Trustpilot to read customer reviews about any companies you’re considering.
How To Prepare To Apply for a Personal Loan
Here’s a step-by-step checklist you can use to find a personal loan that fits your budget:
- Determine how much you need to borrow: Before you start looking for lenders, determine how much money you need to borrow. This can help you narrow your search and find lenders that offer the loan amount you want.
- Check your credit report: Your credit history helps determine the interest rate and loan terms you’ll qualify for. You can check your credit report for free at AnnualCreditReport.com, and you may be able to check your credit score for free through your bank or your credit card issuer.
- Get preapproved: Getting preapproved for a personal loan can help you see what interest rate and terms you might qualify for.
- Read the fine print: Before signing a loan agreement, read it carefully to understand the interest rate, fees and repayment terms. Review the total cost of the loan and look for any penalties for late payments or early repayment.
If you need help evaluating lenders or applying for a loan, consider contacting a nonprofit credit counseling agency that can help you create a realistic plan to pay your debt off.
Frequently Asked Questions About Using Personal Loans To Pay Off Credit Cards
Online lenders, as well as banks and credit unions, are all good places to start your personal loan search. You’ll qualify for the lowest rates if you have good to excellent credit (a FICO score of 670 to 850). But even if you have bad credit, you still may qualify for a personal loan.
No, you generally don’t need to put up collateral to take out a personal loan since most personal loans are unsecured loans. However, if you take out a secured loan, you might need to use your car, house or other assets as collateral to get approved.
You may have options for negotiating with creditors for a debt settlement or repayment plan. However, complete debt forgiveness is uncommon, and debt settlement may negatively impact your credit score and involve tax implications. Bankruptcy is a last-resort option that might discharge credit card debt, but it can also significantly impact your credit score and financial future. Consult a credit counselor before pursuing any of these options.
A credit card forgiveness program is an arrangement where credit card companies might agree to reduce your outstanding debt. This generally occurs when you’re facing extreme financial hardship or can’t make payments. However, participating in such programs can hurt your credit score and may involve fees. Carefully consider potential consequences and explore other options before entering into a credit card forgiveness program.
Sources
*Data accurate at time of publication.
