According to NerdWallet’s 2024 survey conducted online by The Harris Poll only 19% of Americans do not use credit and millions of Americans struggle with unsecured credit card balances, often leading to long-term financial stress. One solution people consider is using a personal loan to pay off credit cards. But is it the best strategy to pay off credit card?
What Is a Personal Loan for Debt Consolidation?
A personal loan is an unsecured loan with a fixed interest rate, paid off over a set term, usually 2 to 5 years. When used for debt consolidation, the goal is to pay off high-interest credit cards and replace them with a single, structured payment.
The Potential Benefits:
- Simplified payments: just one due date each month
- Fixed payoff timeline: know when you’ll be debt-free
- Lower interest rates: may offer lower interest than some credit cards
The Realistic Drawbacks:
- If you have poor credit, you may not qualify for a lower rate which could be no different than your current credit card
- Origination fees and other loan costs can add up
- Risk of accumulating new credit card debt if habits don’t change
When Is a Personal Loan a Good Option?
A personal loan might be right for you if:
- Your credit score is strong enough (typically 640+)
- You’re committed to not using your credit cards again
- You’ve created a realistic monthly budget
- You’ve compared loan offers and found a lower interest rate than what you’re paying now
Example: If you owe $8,000 on multiple credit cards with an average 24.99% APR and qualify for a personal loan at 10%, you could save hundreds in interest and finish paying off your debt sooner.
What If You Have a Lower Credit Score?
If your credit score is under 640, which is common for those with high credit card balances, you may find:
- Loan offers come with very high interest rates
- You may be denied a personal loan outright by many lenders
- Monthly loan payments could be unaffordable
In this case, a personal loan might not improve your financial situation and could even make it worse. If this is the case don’t worry, there are other options to help with your credit card debt.
Alternatives to Personal Loans for Credit Card Debt
Debt Management Plan (DMP) – A Structured, Low-Cost Option
- Offered by nonprofit organizations like American Consumer Credit Counseling (ACCC)
- Combines debts into one easier to manage payment
- May reduce or eliminate interest rates (often to 0–10%)
- No need for a loan or credit approval
Balance Transfer Cards – Best for Those With Fair to Good Credit
- 0% APR promotional offers (usually 12–18 months)
- Good if you can pay off debt during promo period, otherwise you are kicking the can down the road
- May require credit scores of 670+
- Caution: can develop bad spending habits because of the seemingly consequence free nature of spending
How to Make the Right Decision
Ask yourself these questions before applying for a personal loan:
- Can I get a better rate than I’m paying on my cards?
- Can I realistically afford the monthly loan payment?
- Am I ready to stop using my credit cards during repayment?
- Have I explored lower-risk options like a debt management plan?
Reminder: A personal loan is just a tool; it won’t fix overspending or poor budgeting habits on its own.
Conclusion: There Are Smarter Ways to Get Out of Debt
While using a personal loan to pay off credit cards sounds appealing, it’s not a one-size-fits-all solution especially if your credit score is low. For many consumers, alternatives like debt management plans offer more support, fewer fees, and better long-term outcomes.
Not sure where to start? Schedule a free credit counseling session with ACCC today. Our certified counselors can help you explore the safest, most effective way to tackle your debt.
