Paying Down Credit Card Debt With Personal Loan Could Add 80-Plus Points to Your Credit Score
Although credit cards can be convenient, debt can stack up quickly. There are several ways to tackle hefty balances — like the avalanche and snowball methods — but a personal loan could help consolidate credit card debt and boost your credit score.
According to the latest LendingTree study, a personal loan can offer significant assistance. In fact, LendingTree users who took out a personal loan and paid down at least $1,000 in credit card debt saw their credit scores jump by an average of 29 points after one month — and their card balances drop by an average of 45.5%.
Key findings
- Using a personal loan to pay down credit card debt could significantly boost your credit score after one month. LendingTree users who took out a personal loan and paid down at least $1,000 in credit card debt saw their credit scores jump by an average of 29 points after one month. Even after three months, users still saw an average increase of 24 points.
- Consumers with the lowest credit scores saw the highest increases after using a personal loan to pay down credit card debt. Using a personal loan to pay down at least $1,000 in credit card debt increased the average credit score of deep subprime borrowers below 580 by 45 points one month later and 42 points three months later.
- Borrowers who use a personal loan to pay down credit card debt typically cut their balances almost in half. The month after taking out a personal loan to pay down debt, LendingTree users’ credit card balances dropped by an average of 45.5%, or $7,919. Their borrowing continued, though, as their credit card balances were slightly higher after three months (but still significantly lower than before taking out a loan).
- Middle-tier borrowers reduced their credit card balances the most. Near-prime borrowers with credit scores between 620 and 659 saw their average balances drop by $10,031 after the first month and $8,799 after three months. Prime borrowers with credit scores between 660 and 719 were next highest, cutting their credit card debt by an average of $9,354 after one month and $8,104 after three months.
- Perhaps not surprising but still important, paying down higher amounts of credit card debt via a personal loan could boost your credit score even more. Borrowers who used a personal loan to pay down $25,000 or more in credit card debt saw an average increase of 86 points in their credit scores the month after and 78 points three months after. Those who used personal loans to pay down less than $5,000 in credit card debt increased their scores by an average of 16 points after a month and 12 points three months later.
Using personal loan to pay down credit card debt could boost score
Using a personal loan for credit card refinancing (taking on debt to pay down debt) may seem counterintuitive, but it can have major credit score benefits. In fact, LendingTree users who originated a personal loan in March 2024 and paid down at least $1,000 in credit card debt between February and April 2024 had an average credit score increase of 29 points in April.
In June (three months later), that increase dropped slightly to 24 points. Of course, that’s largely due to continued credit card use, but we’ll break that down later.
LendingTree chief consumer finance analyst Matt Schulz — author of “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life” — says that’s a significant jump. “It’s not easy to get that much movement that quickly on your credit score,” he says. “A jump of nearly 30 points in a month can be a real game changer, potentially saving people thousands of dollars.”
Average credit score changes after using a personal loan to pay down credit card debt (by credit score band)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Understandably, those with the lowest credit scores saw the biggest benefits. Deep subprime borrowers with scores below 580 saw their scores jump by 45 points one month after using a personal loan to pay down at least $1,000 in credit card debt. After three months, their score increase was still a significant 42 points.
Schulz says there are several reasons for this movement. “They’ve got more room to grow,” he says. “In some cases, it could be that the person has a very thin credit file, meaning they haven’t borrowed much in the past. In that circumstance, a positive step like this can make a big difference, especially if the only other thing on your credit report is negative.”
Meanwhile, those with super-prime scores saw little or no benefit from using a personal loan. These consumers saw their scores increase by an average of just four points one month after using a personal loan. After three months, their score dropped by an average of one point.
Lenders use your credit score to determine your reliability and likelihood of paying them back. A good credit score can significantly improve your borrowing ability, including receiving larger offers and better interest rates for car loans, mortgages and more.
By age group, millennials see biggest jump
Millennials ages 28 to 43 get the biggest credit score boost from using a personal loan to pay down at least $1,000 in credit card debt. Millennials saw their credit scores jump by an average of 32 points after one month under this scenario — just one point less than Gen Zers ages 18 to 27 at 31.
After three months, millennials saw their score improvement drop to 27 points, while Gen Zers saw it drop to 24.
Average credit score changes after using a personal loan to pay down credit card debt (by generation)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Meanwhile, Gen Xers ages 44 to 59 and baby boomers ages 60 to 78 saw boosts of 27 and 24 points, respectively. After three months, those increases were 23 and 20, respectively.
Indebted consumers using personal loans cut card balances nearly in half
In an ideal world, those with debt would stop using their credit cards after using a personal loan to help pay down their balances. Realistically, there are still bills to pay.
Still, using a personal loan can significantly reduce debt. Users saw their credit card balances drop by an average of 45.5% a month after using a personal loan to pay down debt — from $17,403 in February to $9,484 in April 2024.
After three months, the average credit card balance increased slightly to $10,739. While not ideal, that still represents a 38.3% decrease in balances.
Average credit card balance changes after using a personal loan to pay down credit card debt (by credit score band)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Middle-tier borrowers saw the biggest dollar benefits. Near-prime borrowers with credit scores between 620 and 659 had an average balance of $21,522 in February, which dropped to $11,491 a month later. That’s a decrease of $10,031. By June, their average balance was $12,723 — a $8,799 reduction from February.
Meanwhile, prime borrowers with credit scores between 660 and 719 saw the biggest percentage change, with their balances dropping by 48.8% (or $9,354) after one month and 42.3% (or $8,104) after three months.
“Figure out what you can afford to pay monthly and search for the best loan offer that gets you there,” Schulz says. “Consider the total amount you borrow, the interest rate, associated fees and other factors. Approaching it with the monthly payment in mind can help ensure you won’t set yourself up for struggles.”
Baby boomers, Gen Zers see biggest balance reductions
Turning again to age groups, baby boomers see the biggest benefits in terms of dollar amounts. Before using a personal loan to pay down credit card debt, their average card balance was $18,326. That average fell to $9,987 one month after paying off their debt and $11,241 three months later.
That’s an average decrease of $8,339 and $7,085, respectively.
Average credit card balance changes after using a personal loan to pay down credit card debt (by generation)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Meanwhile, Gen Zers saw the biggest percentage changes in balances. Their initial balance averaged $9,672, falling 55.1% to $4,341 after one month and 45.5% to $5,273 after three months.
Paying off higher balances improves credit scores more
Although it may go without saying, big payouts have bigger payoffs. Those who used a personal loan to pay down $25,000 or more in credit card debt saw the biggest credit score benefits. Their score increased by an average of 86 points after one month and 78 after three months.
Average credit card score changes after using a personal loan to pay down credit card debt (by amount paid off)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Understandably, those who paid off the least saw the smallest benefits. Those who used personal loans to pay off less than $5,000 in credit card debt saw their scores increase by an average of 16 points after a month and 12 points after three months. While smaller in comparison, those increases can still be beneficial.
This pattern holds for balances, too. Those who paid off $25,000 or more saw the biggest balance reduction in dollar amount and percentage. These borrowers started with an average balance of $50,454, dipping to $13,328 after one month and $17,113 after three months. Those are reductions of $37,126 (73.6%) and $33,341 (66.1%), respectively.
Average credit card balance changes after using a personal loan to pay down credit card debt (by amount paid off)
Source: LendingTree analysis of more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
Swimming in credit card debt? Top tips on using personal loan
When you’re in debt, taking out more money can seem daunting and counterintuitive. When done right, though, it can greatly benefit your credit. Schulz recommends the following:
- Shop around. “It’s old advice but still wise,” he says. “Comparison shopping when looking for a personal loan can save you a lot of money because offers can vary widely from different lenders in terms of interest rates, fees, loan amounts and other details. It’s worth your time to check around.”
- Stop spending. “That new loan isn’t an excuse to go shopping,” Schulz says. “It’s a lifeline. If you don’t treat it as such, you risk digging an already deep hole that much deeper.”
- Consider a 0% balance transfer credit card instead. “If you have good credit, a 0% balance transfer credit card can be a better deal than a personal loan,” he says. “That’s because it can help you avoid paying interest for a year or longer on that transferred balance, leading to major savings.”
Methodology
LendingTree researchers compared the credit scores and credit card balances from February 2024 credit reports to the credit scores and credit card balances from April and June 2024 credit reports for more than 2,700 anonymized LendingTree users whose only personal loan appeared on their March 2024 credit reports.
These personal loans generally first appeared on credit reports in March 2024. Only people who paid down at least $1,000 in credit card debt between February 2024 and April 2024 were included in this analysis.
We defined generations as the following:
- Generation Z (born after 1996; ages 18 to 27 in 2024)
- Millennial (born between 1981 and 1996; ages 28 to 43 in 2024)
- Generation X (born between 1965 and 1980; ages 44 to 59 in 2024)
- Baby boomer (born between 1946 and 1964; ages 60 to 78 in 2024)
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