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Personal Loans to Pay Off Credit Cards — Plus 6 Alternative Options

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Using a personal loan to pay off credit cards is a common strategy to reduce your overall cost of repayment — assuming your new personal loan carries a lower interest rate. Another benefit of debt consolidation with a personal loan is reducing the number of bills you have to juggle each month.

But using a personal loan to pay off credit cards isn’t always right for every consumer. There are cons to this strategy, plus alternatives that could suit your situation better.

Pros and cons of using a personal loan to pay off credit cards

To understand whether it makes sense to sign up for a credit card debt consolidation loan, review the pros and cons of this repayment strategy.

What to like about using a personal loan to pay off credit cards

  End your reliance on revolving debt: Unlike a credit card, a personal loan is an installment loan, with fixed payments over a fixed repayment term. By switching to a personal loan, you can ditch the plastic in your wallet, which might help you improve spending habits.

  Repay your debt at a lower APR: Credit cards carry some of the highest interest rates among consumer financing options. With good credit or a creditworthy cosigner, you could qualify for a lower APR on a personal loan. That would result in potentially significant savings, since more of your monthly payment would go toward the principal of your outstanding balance, not the accruing interest.

  Have a single monthly payment: If you’ve racked up debt on multiple credit cards, your head might be spinning with all the different accounts and their individual payment requirements. Consolidating this debt with a personal loan, though, would give you a single monthly payment to a single lender. Sometimes, simpler is better.

What to keep in mind about using a personal loan to pay off credit cards

  Your debt won’t be diminished right away: If you have, say, $15,000 in credit card debt and pay it off with a personal loan, you’ll still owe $15,000 — to a different lender, but hopefully at a lower APR and with friendlier terms. The real work of paying off your outstanding balance won’t begin until after you consolidate.

  Your new loan might not be free of fees: Like with credit cards, personal loans often carry fees. The most common extra charge is a one-time loan origination fee, imposed when your loan is disbursed. It’s wise to keep fees in mind when comparing personal loan lenders, and to avoid lenders that have a prepayment penalty, which costs you extra if you prepay your debt ahead of schedule.

  You might be still tempted to use credit cards: Debt consolidation doesn’t stop the cycle of debt — it merely organizes it. So even after using a personal loan to pay off credit cards, you might find yourself applying for a new credit card down the road and continuing the same old habits that initially got you in the red in the first place.

  You might have trouble getting a low APR: Like with other financing options, the interest rate you qualify for on a personal loan depends on your credit history (and that of your cosigner or co-borrower, if you have one). Without good credit, you might find that your potential personal loan APR isn’t much better than the rate on a credit card.

  You might have to put up collateral: Personal loans can be unsecured or secured. If you don’t have good credit or a creditworthy cosigner or co-borrower to qualify for an unsecured loan, you might have to settle for a secured loan, which is secured by an asset. Of course, if your repayment on a secured loan goes awry, that asset could be seized.

How to use a personal loan to pay off credit cards

How does this form of debt consolidation work? Simply put, you’d use your personal loan funds to pay off your credit cards, then begin repayment on your new loan. Plus, it’ll be even better if you obtain a personal loan that doesn’t include a prepayment penalty — that way, you can pay off your loan ahead of schedule, if possible.

Example situation Example solution
Credit card one $6,000 balance Personal loan $10,000
Credit card two $3,000
Credit card three $1,000

There are a handful of steps to use a personal loan to pay off debt, including:

  1. Prequalify and apply: Receive rate quotes and confirm eligibility with reputable lenders that only perform a soft credit check. Later, you’ll file a formal application that requires a hard credit check (temporarily and minimally dining your credit score).
  2. Choose your loan: Select the lender that offers the best overall loan. It may stand out because it offers the lowest APR or preferred repayment term, or charges fewer and/or lower fees than competitors.
  3. Verify your information: To finalize your personal loan, your lender will ask you to verify the information you previously provided and sign loan closure documents.
  4. Receive your funds: Once your loan is finally approved and the loan amount is disbursed to your checking account, you can use it to pay off your credit cards in one fell swoop. Keep in mind that if you borrow from a lender that charges an origination fee, it will be taken from your loan amount, so choose your loan amount wisely.
  5. Strategize loan repayment: You might now be credit card debt-free, but your personal loan repayment is just beginning. Focus on strategies that will help you meet or exceed your monthly dues. For instance, you might throw windfalls, such as tax refunds or wage bonuses, at your personal loan balance to whittle it down faster.

And, of course, it might be wise to only resume using credit cards once you can realistically zero your balance every month. To accomplish this, you might look at cutting unnecessary expenses from your budget.

Where to get a personal loan to pay off credit cards

If you believe you’d be better off paying off debt with a low-interest debt consolidation loan, you should spend some time comparing all the options available to you.

The following table can give you an idea of APRs and amounts you may find among personal loan lenders. Each lender below offers a minimum repayment period of 24 or 36 months. Ultimately, your credit health and finances will determine your eligibility for a loan.

Loans to pay off credit card debt
Lender APR range Loan amount Minimum credit score
Avant 9.95% to 35.95% $2,000 to $35,000 600
Marcus by Goldman Sachs® 6.99% to 24.99% $3,500 to $40,000 720
Happy Money (formerly Payoff) 7.99% to 29.99% $5,000 to $40,000 640

If you want to receive offers that are personalized for you, you can use LendingTree. As a loan marketplace, you can apply for prequalification and see offers from up to five lenders at once. Prequalification only requires a soft credit check, which doesn’t affect your credit and can give you an idea of the type of loan terms you may qualify for.

Explore loan offers

Keep in mind: Prequalification doesn’t guarantee you’ll be approved for a loan when you formally apply.

6 alternatives to using a personal loan to pay off credit card debt

  1. Balance transfer credit card with 0% APR offer
  2. Home equity loan or home equity line of credit (HELOC)
  3. 401(k) loan
  4. Talk to your credit card issuer
  5. Debt management plan via credit counseling
  6. Debt snowball or debt avalanche method

1. Balance transfer credit card with 0% APR offer

Good for a fast payoff, if you can afford it
Pros Cons
  • No interest due during promotional period
  • Good credit necessary
  • Balance transfer fee
  • High APR after initial repayment period

If you have a small enough amount of debt that you could pay it off in less than a year or so, you may want to look into a balance transfer credit card with a 0% APR offer. These types of offers require good to excellent credit and expire within 12 to as many as 21 months. They allow you to pay off your transferred debt for less, assuming you repay it in full within that time frame. (If you don’t, you’ll be charged interest on what remains of the original balance.)

Expect to pay a balance transfer fee (typically 3% to 5%) upfront in order to take advantage of these offers. Plus, once the 0% offer ends, your card’s rate will reset to the much higher variable interest rate.

2. Home equity loan or home equity line of credit (HELOC)

Good for borrowing at lower rates, if you can stomach the risk
Pros Cons
  • Lower APRs than personal loans
  • Secured loan may not require good credit
  • Eligibility restricted to homeowners with sufficient equity
  • Your home, which serves as collateral, is at risk

If you have a considerable amount of equity in your home, you could look into a home equity loan or HELOC. Both options let you borrow against the equity in your home while using your property as collateral for the loan. However, there are some differences between the two.

  • A HELOC is a line of credit you can borrow against that comes with a variable interest rate, similar to a credit card.
  • With a home equity loan, on the other hand, you get a fixed interest rate, a fixed repayment period and a fixed monthly payment, similar to what you would get with a debt consolidation loan or personal loan.

Both options may allow you to access credit at a lower overall cost. These are forms of secured debt, meaning they’re backed by collateral — in this case, your home. That said, if you’d struggle to repay your debt, you should reconsider this option: If you can’t make payments, you could lose your home.

3. 401(k) loan

Good for borrowing at lower rates, if you don’t mind tapping retirement savings
Pros Cons
  • Lower APR than other financing options
  • Good credit not necessary
  • Lower origination fee
  • Sacrifices your long-term retirement savings, at least temporarily
  • Fewer protections if you struggle in repayment
  • Losing your job could force immediate repayment

If you have a 401(k) retirement account, you have accessible savings to tap for a variety of uses, including paying off credit cards. You can borrow directly from your 401(k) plan’s provider, likely the same company that manages your retirement savings via your employer.

It’s generally easier and more cost-effective to borrow a 401(k) loan than to a traditional installment loan, but there are risks involved. Most notably, if you change jobs (voluntarily or not), you’ll likely be required to repay the loan within three months, or you could face income taxes on the amount borrowed, plus be subject to a steep early withdrawal penalty.

4. Talk to your credit card issuer

Good for a temporary fix, if other financing options aren’t currently feasible
Pros Cons
  • Band-Aid solution (depending on the generosity of your creditors)
  • Won’t solve any long-term obstacle to repayment

You may just need short-term relief on your credit card debt repayment. If you’re unemployed and in debt, for example, it could help to open the lines of communication with your creditors.

Obviously, it’s better to reach out before you miss a payment as opposed to afterward. Explain your situation and see what can be done. It’s possible some credit card issuers may offer a hardship program that cuts your monthly payment or APR for a limited period.

5. Debt management plan via credit counseling

Good for setting a clear repayment strategy, if you don’t mind stretching it out
Pros Cons
  • Fixed, realistic plan to end your debt
  • Should improve your credit score
  • Initial, recurring fees
  • Repayment could still span years

A reputable credit counseling agency may be able to help you create a debt management plan that could lead to fixed payments for a three-to-five-year period or, more informally, a monthly budget and a plan to pay off debt. Counselors who work in these agencies are trained to understand the intricacies of debt repayment, as well as the top strategies you can use to pay off high interest debt through responsible financial management and budgeting.

With that being said, the Federal Trade Commission (FTC) warns that some credit counseling agencies may not be legitimate, or they might charge high fees. Make sure to read reviews and compare options before you use a credit counseling agency to get out of debt. The FTC also suggests looking for counseling from a financial institution or a local consumer protection agency you trust.

You may choose to work only with counselors who are certified by the National Foundation for Credit Counseling or members of the Financial Counseling Association of America. These organizations set standards for financial counselors to ensure customer services are of high quality.

6. Debt snowball or debt avalanche method

Good for staying motivated (snowball) or saving on interest (avalanche) in repayment
Pros Cons
  • Keeps you on track to becoming debt-free
  • Could lose you money on interest (snowball) or be hard to stay motivated (avalanche)

Two common debt repayment strategies are the debt snowball and debt avalanche methods. Each of them have their merits and can help you tackle your debt. In both cases, you’ll make minimum payments on all but one of your debts. Which debt you focus on, however, depends on the strategy you choose.

With a debt snowball, you’ll make higher-than-normal payments on your debt with the lowest balance, without regard for its interest rate. Once that debt is repaid, you’ll move onto the next debt. With this strategy, your smallest account balances will disappear one by one until you’re left with only your largest, then one debt, then none. The main benefit of this strategy is that you’ll have quick “snowballing” wins, helping you stay motivated.

With the debt avalanche method, you’ll pay as much as you can toward your debt with the highest APR. Once repaid, you’ll roll payments over to the next debt, and so on until your debt is repaid. Compared to a debt snowball, a debt avalanche is the mathematically superior option, since you’ll save more money by paying off debts at the highest APR first. However, you may have to wait longer before you get the satisfaction of crossing a debt off your budget.

 

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