If you’re juggling high-interest credit card debt, you may have heard of using a personal loan to consolidate and pay it off. But is it actually a smart move?
Let’s break down the benefits, risks, and when it makes financial sense to swap credit card debt for a personal loan.
✅ Why People Use Personal Loans to Pay Off Credit Cards
1. Lower Interest Rates
Credit cards often come with APRs of 20% or more. In contrast, personal loans typically have lower fixed rates, especially if you have a good credit score.
2. Fixed Monthly Payments
Personal loans have a clear repayment schedule—usually 2 to 5 years—with a fixed payment each month. This helps with budgeting and avoids the “minimum payment trap” of credit cards.
3. Debt Consolidation
Consolidating multiple credit card balances into one loan simplifies your finances. Instead of tracking multiple due dates, you only make one monthly payment.
⚠️ Risks of Using a Personal Loan for Credit Card Debt
1. New Debt Temptation
Once your credit cards are paid off, it can be tempting to use them again—creating a cycle of debt.
2. Loan Fees
Some lenders charge origination fees (1%–8% of the loan), which can eat into your savings from lower interest rates.
3. No Financial Behavior Change
A personal loan is a tool—not a solution. If overspending habits aren’t addressed, debt can return quickly.
🔍 When It Makes Sense
Using a personal loan is smart if:
- You have good to excellent credit (score of 670+).
- The interest rate is significantly lower than your credit cards.
- You’re committed to not using credit cards again.
- You understand the total loan cost (interest + fees).
Use this loan calculator to estimate how much you’ll save on interest.
🧠 Tips Before You Apply
- Compare Lenders: Check multiple loan providers to find the best rate.
- Look for No Fees: Some online lenders offer no-origination-fee loans.
- Read the Fine Print: Watch out for prepayment penalties or variable rates.
📊 Real-Life Example
Say you have $10,000 in credit card debt at 22% APR and only make minimum payments. You could end up paying thousands in interest over several years.
If you instead took a $10,000 personal loan at 9% APR for 3 years, you’d save over $3,000 in interest—and you’d be debt-free sooner.
📝 Final Thoughts
Using a personal loan to pay off credit card debt can be a smart financial move—but only when used responsibly. It’s not a magic fix, but it can provide structure, savings, and peace of mind if you commit to a debt-free plan.