Should You Use a Personal Loan to Pay Off Credit Card Debt?

Credit card debt can feel like quicksand—you think you’re making progress, but those sky-high interest rates keep pulling you back. If you’re juggling balances across multiple cards with rates that make your head spin (looking at you, 24%), a personal loan might seem like a lifeline. But is it the right move for you?

Personal loans often come with lower interest rates and a clear repayment plan, making them an appealing solution for people drowning in credit card debt. Instead of juggling five minimum payments every month, you could simplify things with one fixed monthly payment—kind of like hitting the "reset" button on your finances.

But it’s not all sunshine and rainbows. While personal loans can be a smart financial tool, they’re not a one-size-fits-all fix. That’s why in this blog, we’ll break down the pros, cons, and practical steps to help you figure out if using a personal loan to pay off your credit card debt is a strategy worth pursuing. Spoiler alert: It’s all about knowing your numbers and being honest with yourself about your spending habits. Let’s dive in.

Advantages of Using a Personal Loan

Lower Interest Rates

Let’s talk numbers: The average credit card APR these days can soar well above 24%, while personal loans typically hover around 12%. That’s a massive gap. By swapping high-interest credit card debt for a lower-interest personal loan, you could save hundreds—if not thousands—in interest payments over time. Imagine funneling that extra cash into a vacation fund, emergency savings, or even investments instead of lining the bank’s pockets.

The math is simple: lower rates mean more of your payment goes toward principal (a.k.a. actually reducing your debt) rather than just chipping away at interest.

Simplified Payments

Keeping track of multiple credit card balances, minimum payments, and due dates is enough to give anyone a headache. Enter: the personal loan. By consolidating your credit card debt into a single loan, you’ll only have one monthly payment to worry about.

Even better, personal loans come with a fixed repayment schedule, so you’ll know exactly how much to pay each month and when your debt will be gone. This predictability makes budgeting way easier—goodbye, financial anxiety; hello, peace of mind.

Potential Credit Score Improvement

Your credit utilization ratio (how much of your available credit you’re using) is a key factor in your credit score. Maxed-out cards? Big red flag. But paying them off with a personal loan can dramatically lower that ratio, potentially boosting your score in the process.

Plus, personal loans don’t count toward your utilization ratio since they’re installment loans, not revolving credit. It’s like giving your credit report a breath of fresh air—and maybe scoring yourself a better interest rate on your next car loan or mortgage while you’re at it.

Structured Repayment Plan

One of the biggest traps with credit cards is their open-ended nature. Sure, you can keep making minimum payments forever, but that revolving debt will stick around like an uninvited guest at a party. Personal loans, on the other hand, come with a fixed term—usually anywhere from two to seven years.

This structure gives you a clear “end date” for when you’ll be debt-free, which can be hugely motivating. With a personal loan, you’re not just treading water; you’re swimming toward the shore.

By combining lower interest rates, simplicity, a credit score boost, and a set payoff timeline, personal loans offer a powerful toolkit for tackling credit card debt. But like any tool, it only works if you use it wisely.

Disadvantages of Using a Personal Loan

Risk of Accumulating More Debt

Here’s the harsh truth: using a personal loan to pay off credit card debt doesn’t fix the habits that got you into debt in the first place. If overspending was the culprit, there’s a risk you’ll breathe a sigh of relief after paying off those credit cards… and then start racking them up again. Before you know it, you’ve got both a personal loan and a shiny new pile of credit card balances staring you in the face. Yikes.

This strategy only works if you’re committed to breaking the debt cycle. That means keeping those credit cards on lockdown—or better yet, cutting them up—and creating a budget that actually works for your lifestyle.

Fees and Penalties

Personal loans can come with some sneaky costs. Many lenders charge origination fees—usually 1% to 8% of the loan amount—just for processing the loan. Depending on the size of your loan, that fee can add up quickly and eat into your interest savings.

Some lenders also slap on early repayment penalties if you pay off the loan faster than expected (because apparently being responsible is punishable?).

That’s why it’s crucial to read the fine print before signing anything. Compare loan offers carefully to make sure the overall cost—fees included—still makes sense for your financial situation.

Qualification Requirements

Not everyone can waltz into a bank and walk out with a low-interest personal loan. Lenders typically reserve the best rates for borrowers with good to excellent credit—usually a credit score of 670 or higher. If your credit is on the lower end of the spectrum, you might qualify for a loan, but the interest rate could be so high that it’s not worth it.

This can leave some people stuck in a Catch-22: you need a low-interest loan to pay off debt and improve your credit, but your current credit situation makes it tough to get a good loan. If that’s the case, exploring alternative strategies (like negotiating with credit card companies or using a balance transfer card) might be a better bet.

Personal loans aren’t a magic wand. While they offer benefits, there are strings attached—and for some borrowers, those strings can be deal breakers. Knowing the risks upfront is key to making a decision that actually helps, rather than hurts, your financial progress.

Steps to Use a Personal Loan for Credit Card Debt

1. Assess Your Debt

First things first: get a clear picture of what you’re working with. Add up all your credit card balances to calculate the total amount you need to consolidate. While you’re at it, note the interest rates on each card so you can compare them to the personal loan offers you’ll explore later. This step gives you a baseline for determining if a personal loan is worth it. If your credit card APRs are sky-high, a personal loan with a lower rate could save you serious cash.

2. Shop for Personal Loans

Next, it’s time to shop around like your financial future depends on it—because it does. Compare offers from banks, credit unions, and online lenders, focusing on interest rates, loan terms, and any sneaky fees (like origination fees). Use pre-qualification tools whenever possible. These allow you to check potential rates without dinging your credit score—a win-win.

Keep an eye on the APR, which includes both the interest rate and any additional fees, to get a true sense of what you’ll be paying.

3. Apply for the Loan

Once you’ve found the best offer, it’s time to seal the deal. Most lenders will require documentation to verify your income, credit history, and existing debts. Be prepared to share items like pay stubs, tax returns, and bank statements. If your credit score meets the lender’s requirements, you should receive approval fairly quickly—sometimes in as little as 24 hours.

Pro Tip: Avoid applying for multiple loans at once. Each application triggers a hard inquiry on your credit report, which can temporarily lower your score.

4. Pay Off Credit Card Debt

Once the loan funds hit your bank account, don’t even think about splurging on a new gadget or weekend getaway. Use the money exclusively to pay off your credit card balances. This is the whole point of the loan, after all!

After paying off your credit cards, resist the urge to use them for new purchases. Consider leaving them at home—or even canceling a few if you’re confident it won’t harm your credit score too much.

5. Focus on Repayment

With your credit cards cleared, shift your attention to the personal loan. Make paying it off a top priority. Consider setting up automated payments so you never miss a due date and don’t get slapped with late fees. If possible, add a little extra to your payments each month to knock out the debt faster.

Most importantly, avoid falling back into the credit card trap. Stick to a budget, track your spending, and build an emergency fund to cover unexpected expenses. This way, you’ll stay on track toward financial freedom without needing another loan down the line.

Following these steps can help you use a personal loan strategically to tackle credit card debt. But remember: the real win isn’t just clearing your balances—it’s changing the habits that got you there in the first place.

Personal Story: The Tale of Jane's Financial Reset

Meet Jane: a 32-year-old marketing professional with a weakness for online shopping and an impressive collection of shoes to prove it. Over the years, her spending habits quietly spiraled out of control, leaving her with $15,000 in credit card debt spread across four cards. With interest rates averaging 23%, she was barely making a dent in her balances, even though she was paying more than the minimum each month.

Frustrated and stressed, Jane decided it was time to take back control. She started researching ways to tackle her debt and stumbled upon the idea of using a personal loan. After some digging, Jane found a lender offering a 10% personal loan, which would not only simplify her payments but also save her hundreds of dollars in interest over the life of the loan. Using a pre-qualification tool, she confirmed she was eligible for the loan without hurting her credit score and decided to move forward.

With her loan approved, Jane immediately paid off all four credit cards. For the first time in years, she felt a sense of relief. But the journey didn’t stop there. Temptation struck hard when her now-zeroed-out credit cards started calling her name. “Just one little purchase won’t hurt,” she thought. Thankfully, Jane caught herself before she slid back into old habits. She knew she needed a plan to avoid falling into the same trap.

Jane created a budget for the first time in her life, using a simple spreadsheet to track her income and expenses. She also started using a budgeting app to monitor her spending in real-time, making sure she stayed within her limits. To keep herself accountable, Jane even set up automatic transfers to her savings account every payday.

With her newfound discipline, Jane paid off her personal loan two years early and built an emergency fund to cover unexpected expenses. Today, Jane has not only stayed out of credit card debt but has also begun investing for her future—something she never thought possible during her debt-laden days.

Jane’s story is a reminder that using a personal loan to consolidate credit card debt can be a powerful tool, but it takes more than just lower interest rates to break the cycle. It requires a commitment to change, a solid plan, and the determination to stick to it. If Jane can do it, so can you.

Conclusion

Using a personal loan to pay off credit card debt can be a smart move—if you approach it with a solid plan. The pros are clear: lower interest rates can save you money, simplified payments can reduce stress, and a structured repayment plan can help you stay disciplined. On the flip side, the cons include potential fees, strict qualification requirements, and the risk of accumulating new debt if you don’t address the habits that led to credit card trouble in the first place.

The key to success lies in what comes next. Consolidating your debt is only the first step. To truly break free, you need to commit to better financial habits, like budgeting, tracking expenses, and avoiding the temptation to overspend. Maintaining discipline after consolidation is what turns a good financial decision into a great one.

If you’re ready to take control of your finances, why not get some extra support? Check out our free budget and retirement calculator to get started on a clear plan for your money. Or, if you’d prefer one-on-one guidance, sign up for a free consultation with a CPA to discuss your financial goals and create a personalized roadmap to success. Whatever path you choose, remember: financial freedom isn’t about perfection—it’s about progress. You’ve got this!