Should you take out a personal loan to pay off credit card debt? Here's how it could save you money (2024)

Credit card debt can quickly turn into a cycle of never-ending payments. Thankfully, there are several solutions if you're looking to get ahead of your debt and pay it off faster.

One way is to apply for a personal loan to effectively move your debt from your credit card issuer to a personal loan lender and hopefully snag a smaller interest rate and better repayment options. By doing so, you'll likely pay less in interest in the long run and can eventually become debt-free. There are also a few other options that are worth considering if you want to consolidate debt efficiently and cheaply.

Below, Select details what you need to know about using a personal loan to pay off credit card debt, and how to get started.

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Benefits of using a personal loan to pay off credit card debt

Credit card debt has ballooned recently as Americans continue to cope with record-high inflation for everyday goods such as gas and groceries. Unfortunately, trends like this can create a slippery slope since credit cards tend to have high-interest rates, allowing consumers to rack up debt even quicker.

If you've found yourself in a credit card debt loop, you may want to think about using a personal loan. Here are two reasons why using a personal loan to pay off credit card debt could make sense for your situation.

Personal loans have lower interest rates than credit cards

According to the most recent Federal Reserve data, the average credit card interest rate in May 2022 was 15.13%. In the same month, personal loan interest rates averaged 8.73% for a 24-month loan.

Let's say you have $8,000 in credit card debt that you'd like to pay off. If you kept the balance on your credit card, you'd end up paying $1,326 in interest. If, instead, you applied for a personal loan and paid that down over two years, you'd end up paying $747 in interest — that's a difference of $579 in interest.

And keep in mind that these interest rates are just averages. LightStream, Select's best overall pick for personal loans, offers APRs ranging from just 7.49% - 25.49% APR with AutoPay, depending on your terms. So, your savings can be even greater.

See if you're pre-approved for a personal loan offer.

You can reduce the number of monthly payments you have

If you happen to have more than one credit card with a revolving statement balance, opting for one concise monthly payment with a personal loan could be helpful. Rather than focusing your efforts in multiple places, you'll have all your debt in one place and can put your energy into paying that down. Plus, the more money you put toward the personal loan, the faster you can pay it down and the less overall interest you will pay.

Drawbacks of using a personal loan to pay off credit card debt

Using personal loans to pay off credit card debt doesn't come without risk, however. Here are a few cons to consider before you apply for one.

Personal loans could lead to more debt

If you decide to take this route, it's important to use a personal loan as a means to an end. Even if you use one to pay off your debt, you could quickly find yourself with credit card debt once again, along with a personal loan for your former debt if you're not careful.

If you do take out a personal loan to pay off your credit card debt, make sure you immediately pay off your credit card balances with the cash from the loan. Some lenders will do this automatically for you when you apply for a loan. Then have a plan in place to pay back your loan and create a budget so you don't overspend.

A lower interest rate isn't guaranteed

While there's a large disparity between the average interest rates for credit cards and personal loans, there's no guarantee you'll end up with a better rate. Find out the exact interest rate you're paying on your credit card and do your best to track down a better interest rate with a personal loan. Factors like your credit score, loan amount and term length can all impact what APR you qualify for.

Check out Select's personal loan marketplace which will allow you to see what loans you're pre-qualified or pre-approved for. It's free, will not impact your credit score and allows you to compare interest rates from different lenders.

Personal loans have fees

As you're researching different lenders, consider any fees you may be charged for the personal loan, which can include application fees, origination fees, prepayment penalties, late payment fees, returned payment fees or payment protection insurance. If the difference in interest rates is small between your credit card and personal loan, the fees can negate any potential savings.

Best personal loans for paying off credit card debt

If a personal loan sounds like a viable solution for your financial needs, here are a few of Select's favorite lenders to choose from. Select ranked LightStream as the best personal loan lender overall because of its low interest rates and flexible terms, but PenFed is also good for those seeking smaller loans and Discover for those seeking fast funding. These loans also don't have origination or early payoff fees.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    7.49% - 25.99%* APR with AutoPay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, and others

  • Loan amounts

    $5,000 to $100,000

  • Terms

    24 to 144 months* dependent on loan purpose

  • Credit needed

    Good

  • Origination fee

    None

  • Early payoff penalty

    None

  • Late fee

    None

Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.

PenFed Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 17.99% APR

  • Loan purpose

    Debt consolidation, home improvement, medical expenses, auto financing and more

  • Loan amounts

    $600 to $50,000

  • Terms

    1 to 5 years

  • Credit needed

    Good/Excellent

  • Origination fee

    None

  • Early payoff penalty

    None

  • Late fee

    $29

Discover Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 24.99%

  • Loan purpose

    Debt consolidation, home improvement, wedding or vacation

  • Loan amounts

    $2,500 to $40,000

  • Terms

    36, 48, 60, 72 and 84 months

  • Credit needed

    Good

  • Origination fee

    None

  • Early payoff penalty

    None

  • Late fee

    $39

Terms apply.

Select's personal loan marketplace

Check out Select's personal loan marketplace which will allow you to see what loans you're pre-qualified or pre-approved for. It's free, will not impact your credit score and allows you to compare interest rates from different lenders.

Another way to consolidate credit card debt

While taking out a personal loan is a solid option for paying off credit card debt, another way to go about it is to sign up for a balance transfer credit card that comes with a 0% introductory APR. With this type of card, for a specified amount of time, its balance will not incur any interest as long as you make the minimum payment each month.

For example, the Wells Fargo Reflect® Card offers a 0% introductory APR for 21 months from account opening (after, 18.24%, 24.74%, or 29.99% variable APR; see rates and fees) on purchases and qualifying balance transfers. Balance transfers made within 120 days from account opening qualify for the intro rate, BT fee of 5%, min $5.

If a personal loan doesn't suit your needs, consider using a 0% intro APR credit card such as one of the following listed below:

Citi® Diamond Preferred® Card

  • Rewards

    None

  • Welcome bonus

    None

  • Annual fee

    $0

  • Intro APR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

    18.24% - 28.99% variable

  • Balance transfer fee

    5% of each balance transfer; $5 minimum. Balance transfers must be completed within 4 months of account opening.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

See rates and fees. Terms apply.

Pros

  • No annual fee
  • Balances can be transferred within 4 months from account opening
  • One of the longest intro periods for balance transfers

Cons

  • 3% foreign transaction fee

Chase Freedom Unlimited®

On Chase's secure site

  • Rewards

    Enjoy 4.5% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery services, 6.5% cash back on travel purchased through Chase Travel, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; and 3% cash back on all other purchases (on up to $20,000 spent in the first year). After your first year or $20,000 spent, enjoy 5% cash back on travel purchased through Chase Travel, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and unlimited 1.5% cash back on all other purchases.

  • Welcome bonus

    INTRO OFFER: Earn an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) - worth up to $300 cash back!

  • Annual fee

    $0

  • Intro APR

    0% for the first 15 months from account opening on purchases and balance transfers

  • Regular APR

    20.49% - 29.24% variable

  • Balance transfer fee

    Intro fee of either$5or3%of the amount of each transfer, whichever is greater, on transfers made within 60 days of account opening. After that, either$5or5%of the amount of each transfer, whichever is greater.

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

  • Member FDIC. Terms apply.

Read our Chase Freedom Unlimited® review.

Wells Fargo Active Cash® Card

On Wells Fargo's secure site

  • Rewards

    Unlimited 2% cash rewards on purchases

  • Welcome bonus

    Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months

  • Annual fee

    $0

  • Intro APR

    0% intro APR for 15 months from account opening on purchases and qualifying balance transfers; balance transfers made within 120 days qualify for the intro rate

  • Regular APR

    20.24%, 25.24%, or 29.99% Variable APR on purchases and balance transfers

  • Balance transfer fee

    3% intro for 120 days from account opening then BT fee of up to 5%, min: $5

  • Foreign transaction fee

    3%

  • Credit needed

    Excellent/Good

See rates and fees, terms apply.

Bottom line

Escaping credit card debt is a great start to building financial stability and long-term wealth, so using any solution to get out of the debt cycle is worth considering.

Before applying for a personal loan, check your credit score to see where you currently stand, as it will help you determine the kinds of loans you'll be able to qualify for.

Catch up on Select's in-depth coverage ofpersonal finance,tech and tools,wellnessand more, and follow us onFacebook,InstagramandTwitterto stay up to date.

Read more

Thinking about applying for a personal loan? Here's how to check if you're pre-approved

How to decide between using a personal loan or a 0% APR card to get out of debt

This is the most efficient and cost-effective way to pay off credit card debt

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Should you take out a personal loan to pay off credit card debt? Here's how it could save you money (2024)

FAQs

Should you take out a personal loan to pay off credit card debt? Here's how it could save you money? ›

Using a personal loan to pay off debt helps you get rid of multiple payments and go down to one payment per month — and hopefully with a much lower APR. Consider using a debt repayment calculator to determine how much sooner you could pay off your debt with a lower interest rate.

Is it better to get a personal loan to pay off credit card debt? ›

As of November 2023, the average interest rate on a personal loan with a 24-month term was 12.35%, according to data from the Federal Reserve. So, by using a personal loan to pay off your credit card debt, there could be significant savings, as the average credit card rate is currently 21.47%.

Is it better to close the credit card with personal loan? ›

Using a personal loan to clear your credit card debt can be a wise financial move if you're struggling with high-interest credit card balances and want to regain control of your finances. It offers lower interest rates, structured repayments, and the potential to improve your credit score.

Will my credit score increase if I pay off credit cards with a personal loan? ›

Pros. Improves your credit score: Paying off credit card debt can improve your credit utilization ratio, thus boosting your credit score. It may also improve your credit mix. Lower interest rates: Personal loans often come with lower interest rates.

What advantage does a personal loan have over credit card debt? ›

Repayments and interest rates

While unsecured personal loans don't usually carry an interest rate as low as a secured loan, such as a home loan, they typically have a lower interest rate than credit cards.

Should I take out a loan to pay my credit card bills? ›

If you're struggling with your credit card balances, you may consider using a personal loan to consolidate your accounts. While this can be a good way to lower your monthly payments and make it easier to pay off your debt, it also carries risks.

Will my credit score drop if I pay off a personal loan? ›

Paying off an installment loan entirely can affect your credit score because of factors like your total debt, credit mix and payment history. The benefits to paying off a personal loan include reducing your debt-to-income (DTI) ratio and saving on interest over the course of the loan.

Does taking a personal loan hurt your credit? ›

Your credit score can dip a few points when you formally apply for a personal loan, but missed payments can cause a more significant drop. Getting a personal loan will also increase the amount of debt you owe, which is one of the factors that make up your credit score.

Can I take a loan to clear my credit card? ›

It depends on your repayment capacity. Typically, outstanding credit card balance attracts much higher interest rates than personal loans. In such cases, it may be advisable to consider an Insta Personal Loan. Consider all available options before you decide on how to proceed.

Is it better to clear credit card or loan? ›

In general, it's best to pay off credit card debt first, then loan debt, since credit cards often have the highest interest rates. When you prioritize paying off credit card debt, you'll not only save money on interest, but you'll potentially improve your credit too.

What is the quickest way to pay off credit card debt? ›

Strategies to help pay off credit card debt fast
  1. Review and revise your budget. ...
  2. Make more than the minimum payment each month. ...
  3. Target one debt at a time. ...
  4. Consolidate credit card debt. ...
  5. Contact your credit card provider.

Why did my credit score drop 40 points after paying off debt? ›

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

Is there a loan to clear credit card debt? ›

A debt consolidation loan is a personal loan you can use to pay off any other debts you have. These can include store cards, credit cards, overdrafts, and even other loans.

Is it smart to get a loan to pay off debt? ›

Using a personal loan to pay off debt helps you get rid of multiple payments and go down to one payment per month — and hopefully with a much lower APR. Consider using a debt repayment calculator to determine how much sooner you could pay off your debt with a lower interest rate.

Is a personal loan good for credit card debt? ›

Personal loans can be a great way to consolidate credit card debt and get a lower interest rate. Credit card debt can quickly turn into a cycle of never-ending payments. Thankfully, there are several solutions if you're looking to get ahead of your debt and pay it off faster.

Is it worse to have a loan or credit card? ›

Credit cards generally have higher interest rates than personal loans. (The average credit card currently has an annual percentage rate, or APR, of more than 17 percent.) If you carry a large balance, interest charges can add up quickly. Credit cards typically charge late fees; many charge annual fees as well.

Is it cheaper to pay off a credit card with a loan? ›

You'll probably get a lower interest rate

If you take out a personal loan that has a lower interest rate than what you're paying on your credit cards, you could save a lot of money in interest charges by using your personal loan to pay off your credit card debt.

Is it better to pay off a credit card or a bank loan? ›

In general, it's best to pay off credit card debt first, then loan debt, since credit cards often have the highest interest rates. When you prioritize paying off credit card debt, you'll not only save money on interest, but you'll potentially improve your credit too.

Is it better to get a loan to pay off all debts? ›

Having all your debt in one place can make it easier to see how much you owe, how quickly you're paying it off, and how much interest you're being charged. Potentially lower rates. You may be able to reduce the amount of interest you're paying by consolidating your debt under one lower interest loan.

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