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Best Personal Loans to Pay Off Credit Card Debt January 2023

Personal loans to pay off credit card debt
Richard Barrington
UpdatedDec 17, 2022

A personal loan can help you save on interest and get out of debt.

Here are four lenders that can help you pay off your credit card debt with a personal loan.

LenderLoan AmountMinimum Credit Score
Lightstream$5K - $100K660
SoFi$5K - $100K680
Payoff$5K - $40K640
Upstart$1K - $50K620

Each lender has its pros and cons. To learn more, click on the links below:

  1. Best for low rates: Lightstream
  2. Best for large loans: SoFi
  3. Best for subprime credit card consolidation: Payoff
  4. Best for fair credit but on the upswing: Upstart

Personal Loans to Pay Off Credit Cards — Plus 4 Alternative Options

Table of Contents

  • What is a personal loan to pay off credit card debt?
  • How to choose a personal loan for credit card debt
  • Should you take a personal loan to pay off credit card debt?
  • 4 Alternatives to Personal Loans For Credit Card Debt
  • Pros and cons of using a personal loan to pay off credit cards

Credit card debt has a way of creeping up on people. If yours has reached the point where it’s gotten expensive and hard to manage, paying it off with a personal loan may be a good financial move.

Using a personal loan to pay off credit card debt can have a few benefits. It could lower the interest rate you’re paying on your debt. If you have multiple credit cards, a personal loan could give you a single monthly payment. Plus, a personal loan can put you on a set schedule to pay off your debt.

What is a personal loan to pay off credit card debt?

You are probably familiar with personal loans. They offer a set amount of money to be repaid in equal installments over a predetermined length of time. The interest rate is fixed for the life of the loan. When used to pay off credit card debt, the loan is often referred to as a debt consolidation loan. 

For example, suppose you have balances on three different credit cards. You could take out a personal loan to pay off those balances. Then you would owe money on the one loan instead.

Using a personal loan to pay off credit card debt can have benefits and drawbacks. Whether or not it works for you depends on the loan terms, your debt and credit situation, what you’re trying to accomplish, and what you do after you get the loan.

How to choose a personal loan for credit card debt

Here are some things to consider when choosing a personal loan to pay off credit card debt:

  • Will you qualify? Before you start applying, research the credit requirements of potential lenders. Check your credit score, and see if you’re likely to qualify.
  • What interest rate can you get on the loan? Just because a lender advertises a low rate doesn’t mean that’s the rate you’ll get. If you have a lower credit score, you may have to pay a higher rate. Don’t commit to a loan until you understand your rate.
  • Is the new interest rate less than what you’re paying now? A key goal of debt consolidation is lowering your interest rate to save money. Once you find out what interest rate you can get on a personal loan, compare it with the rate(s) on your current debt to see if you can save money. 
  • Will loan fees eat up the savings? Interest rates are very important, but they are not the only cost of a personal loan. Check the fees involved. Factor the fees in when you do the math to see how much you will save with the personal loan. 
  • Can you afford the monthly loan payments? Always budget before you borrow. A personal loan will have a fixed payment that might be higher than the sum of the minimum payments on your credit cards. 

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

What you can accomplish by paying off credit card debt with a personal loan depends on the loan terms you can get and your current situation. 

The biggest potential downside is that you could take a loan to pay off your credit cards, and then run up new balances on your credit cards. You could end up even worse off than you started. It’s important to have a firm plan for financial health in place before you pay off one debt with another.

You can consider using a personal loan to pay off credit card debt if doing so would help you accomplish any or all of the following goals:

Save money on interest charges

Based on consumer credit information from the Federal Reserve, over the past 25 years the average rate on personal loans has been nearly 2% less than the average rate charged on credit cards. 

Here’s an example. Let’s say you owe $5,000 on a credit card with an 18% interest rate. If you pay it off over three years. The payment is $181 per month and you’ll spend $1500 on interest.

If you take a personal loan with a 12% interest rate, you only have to pay $166 per month and you’ll pay less than $1,000 in interest. That’s a $500 savings.

Reduce the number of bills you pay

People often have balances on more than one credit card. Paying multiple bills can be confusing, overwhelming, or inconvenient. It may also increase the chance that you’ll forget to pay one of them, or that you’ll pay late. Replacing multiple payments with one monthly loan payment could make your life easier. 

Get on schedule to pay off your debt

A personal loan has a clear payoff date. Credit cards give you flexibility as to how much you pay every month. Their minimum payments are designed to stretch your debt out over a long time so you pay more interest. Plus, if you keep using the card you may add to your balance even as you’re trying to reduce it. A personal loan can put you on a firm schedule to pay off your debt. That can help you stay on track towards becoming debt-free.

A key to meeting any of these goals is having a plan to avoid running up new credit card debt after you pay off your cards with loan funds. It’s a pitfall that’s easy to fall into. Close the accounts or lock the cards so that you don’t double your debt. Consolidation works best when it’s part of a broader debt reduction plan.

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

Pros

Potential to save money with a lower interest rate Combining multiple debts into one reduces the number of monthly payments A loan has a predetermined end date that helps you keep your eye on the prize (payoff) Adding a loan to your credit mix may help your credit score

Cons

Loan fees could eat up some or all of the interest savings If you’re not careful to avoid running your credit cards back up, you could end up with even more debt Loans give less flexibility than credit cards when it comes to the monthly payment Qualifying for a loan with good terms may be difficult if your credit is damaged

4 Alternatives to Personal Loans For Credit Card Debt

Below are some possible alternatives to personal loans that may help you accomplish some of the same goals as refinancing. 

Snowball method

The snowball method is one way to approach debt payoff. 

Once you meet your minimum required payments each month, you may have money left over to add to your payments. In the snowball method, you would apply those extra funds to your smallest debt first (in addition to the minimum payment). 

Once you pay off that debt, take the amount you were paying towards it and apply it to the next card in addition to its minimum payment. And so on. Over time, your payments snowball and you would pay down debt faster and faster. 

Balance transfer

A balance transfer means moving your credit card debt from one card to another. Usually, people do balance transfers because they can lower the interest rate on the debt (at least temporarily).  

There are balance transfer credit cards specifically marketed for this purpose. These charge little or no interest during an introductory period. 

A couple of things you should be aware of. Balance transfers usually aren’t free. You might pay 3-5% of the amount you transfer, and that fee will negate a portion of the savings you hope to achieve. Also, the low interest period applies for a limited time. Unless you can pay off the balance in full by the end of that time, you will then be paying a higher interest rate once again. Cards with low and zero percent introductor APRs are not typically the ones that offer low regular interest rates. 

Debt management plan

A debt management plan involves letting a debt counselor organize your debts, and help you make a budget and a plan for paying them off. They’d also attempt to negotiate better repayment terms for you. These may include lower interest rates, waived fees, and more time to pay. You would need to enroll all of your debts in the plan and make your payments to the debt counseling agency. The agency will make the payments to your creditors.

A debt management plan can help simplify your payments and get you on a path to payoff. There is typically a monthly fee for the plan, although some agencies waive the fee for consumers who qualify.

Debt management plans are for debtors who need help and who are willing to stop using credit, at least until the plan is complete, usually 3-5 years.

Debt settlement

Debt settlement involves hiring someone to negotiate with your creditors to reduce the amount you owe. It’s an option for debtors who want professional help getting out of debt, and the possibility of repaying less money overall.

If the debt settlement firm succeeds in getting any debt written off, they typically charge a fee equal to a percentage of the written off debt. This fee reduces the amount you’d save. Also, settled debts may be treated as taxable income, which can further reduce the amount you save.