Should you get a personal loan to pay off credit card debt?

There are a series of items to account for when evaluating personal loans for debt consolidation.  (iStock)

Recent research reveals a troubling trend: nearly half of American households carry credit card debt. On average, Americans with credit cards have $6,194 in debt, according to a recent Experian analysis and The Federal Reserve Bank reports usage is on the rise.

Continue Reading Below

With credit card debt on the balance sheet for many Americans, consumers are turning to personal loans as a way to reduce financial stress and consolidate balances. “Personal loan interest rates may be lower than your current credit card interest rates,” said fee-only Certified Financial Planner Breanna Reish. “When working through debt they can be used as a tool to pay down debt faster by using a lower interest rate which in turn may result in a lower payment or faster pay down.”

A personal loan isn’t revolving credit like a credit card; it’s a type of installment loan, meaning you get the money upfront and pay it back over a set term in monthly increments. For a personal loan to work when paying off credit card debt, the personal loan needs to have a substantially lower interest rate than the ones on the cards. With the fees involved in taking on a personal loan, a small difference in interest rates won’t make a big impact when consolidating debts.

How to consolidate debt with a personal loan

Since most personal loans are unsecured – meaning you don’t have to put up any type of collateral in order to obtain one – the rate offered largely depends on how good your credit score is. The higher your credit, the lower the interest rate you’ll obtain.


There are a variety of online lenders offering personal loans. Personal loans may also be offered through your local bank or credit union. While it may be tempting to touch the funds for something fun, once the full amount goes into your bank account it is important to use those funds to pay off your balances – and for nothing else.

Then, each month, instead of paying individual card accounts, you’ll make a monthly payment toward your personal loan. Another added benefit is that a personal loan is an installment loan, meaning you can’t continue to rack up more debt.

Pros and Cons

In terms of debt consolidation, taking on a personal loan is one of the more expensive options and should only be utilized when all other avenues (like balance transfers and strict budgeting) are exhausted. Personal loans mean consumers can take on entirely new debt; those who aren’t careful can get in over their heads and end up with a personal loan and still carry credit card debt.


It’s also worth noting, 36 percent for a personal loan is higher than the interest rates most credit card companies offer, which typically range between 17-24 percent. For this reason, only those who can score a personal loan at a rate at 15 percent or below will see the substantial savings to be had by using a personal loan to consolidate debts.

“Before shifting any loans you should get your budget and cash flow in order,” Reish advised. “While debts may have accumulated for many reasons, cash flow tends to be one of the main reasons why people have debt. It’s very important to understand how much one can afford to contribute to the debt pay down goal each month before accumulating more debt.”

If you can get one, a balance transfer offer from a credit card company with a zero percent introductory APR is even better than taking on a personal loan in order to consolidate debt. While balance transfer offers do come with fees, they allow consumers to consolidate balances at a much lower cost than personal loans and provide a solid timeline for paying off the balance.