Essential points
– Utilizing a personal loan to settle credit card debt can be a wise decision if you can obtain a lower interest rate or are managing multiple credit card payments.
– Paying off credit card debt with a personal loan might not be suitable for you if you are feeling overwhelmed by debt.
– Before opting for a personal loan to clear debt, assess your spending habits.
– Ideally, people wouldn’t need to resort to borrowing money to consolidate and repay debt. However, in reality, taking out a loan can sometimes be the only way out, particularly due to the high interest rates on credit cards.
– With the average credit card APR standing at 20.10 percent as of February 2025, individuals are burdened with paying substantial amounts in interest, resulting in only a fraction of their minimum payment going towards reducing the credit card balance.
– These challenges prompt many to consider consolidating their credit card debt using a personal loan.
When to consider a personal loan for credit card debt
Debt consolidation involves obtaining a single loan to clear multiple other debts. While consolidating debt with a personal loan essentially swaps one debt for another, this approach boasts advantages if you can secure a personal loan featuring reasonable interest rates and fair conditions.
– You may qualify for a reduced interest rate: To qualify for the best personal loan rates and terms, typically, you’d need a FICO score of 800 or higher. However, competitive rates can still be accessible with a score of 670 or above. Personal loans come with an average APR of 12.38 percent as of February 2025, significantly lower than the average credit card APR of 20.10 percent, leading to substantial interest savings.
– Consolidate debts into one payment: Managing various credit cards with individual payments and APRs can make organizing a debt repayment plan challenging. By using a personal loan to settle debt, you can eliminate multiple payments and streamline to one monthly payment, ideally with a significantly lower APR.
– Secure a lower monthly payment: If you’re grappling with the weight of credit card debt and find yourself spending more on payments each month than you earn, a personal loan with a lower APR and fixed repayment schedule could offer the relief you need.
– Determine your debt-free timeline: Credit cards pose a major issue if
If you keep using credit cards for purchases without paying off your debt, you may never become debt-free. Unlike credit cards, personal loans offer a fixed interest rate, fixed monthly payments, and a clear repayment schedule that ensures you will be debt-free by a specific date. If you’re tired of making little progress on credit card payments, consolidating your debt with a personal loan and switching to cash or debit cards may be a better option.
However, there are situations where using a personal loan to pay off credit card debt may not be the most cost-effective choice. If you have a small amount of debt that you can pay off quickly within 12 to 21 months, consider using a balance-transfer credit card with a 0 percent APR offer. This can save you money on interest payments, especially if you pay off the debt during the promotional period. Be sure to compare offers and factor in any balance transfer fees.
If your credit card debt is primarily due to poor spending habits, consolidating your debt may not address the root issue. It’s important to reevaluate your financial habits and consider consulting a personal finance coach or exploring different budgeting methods to avoid falling back into debt.
In cases where you feel overwhelmed by debt, seeking help from a debt relief company, Consumer Credit Counseling Services, or exploring debt management or settlement plans may be necessary. Bankruptcy could also be an option if you have an insurmountable amount of debt. It’s crucial to research and verify the credibility of any third-party companies offering debt relief assistance.
While using a personal loan to pay off credit card debt can be beneficial, it’s not the only solution. Alternative options include balance transfers, debt management plans, and debt settlement. Ultimately, by focusing on debt repayment, you can free up cash each month and work towards financial stability and freedom.
Generating extra income to save is a practical approach for building financial stability. Opting for a personal loan can be a strategic method for consolidating debt; however, it is essential to thoroughly explore all available options and resources. To effectively eliminate debt, it is crucial to refrain from accumulating new bills that cannot be settled. Regardless of the debt reduction strategy you select, it is advisable to discontinue the use of credit cards and instead rely on cash or your debit card during the debt repayment phase.
