Using a Personal Loan to Pay Off Credit Card Debt

Credit card debt can quickly turn into a cycle of endless payments. Fortunately, there are several solutions if you are looking to anticipate your debt and pay it off more quickly.

One way is to apply for a personal loan to effectively transfer your debt from your credit card issuer to a personal lender and hopefully get a lower interest rate and better repayment options. By doing so, you’ll likely pay less interest in the long run and eventually be able to get out of debt. There are also a few other options worth considering if you want to consolidate your debt effectively and affordably.

Below, Select details what you need to know about using a personal loan to pay off credit card debt and how to get started.

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Benefits of using a personal loan to pay off credit card debt

Credit card debt has skyrocketed recently as Americans continue to face record inflation for daily consumer goods such as gasoline and groceries. Unfortunately, such trends can create a slippery slope since credit cards tend to have high interest rates, allowing consumers to get into debt even faster.

If you’ve found yourself in a credit card debt loop, you might want to consider using a personal loan. Here are two reasons why using a personal loan to pay off credit card debt might make sense for your situation.

Personal loans have lower interest rates than credit cards

According to most recent data from the Federal Reserve, the average credit card interest rate in May 2022 was 15.13%. During the same month, personal loan interest rates averaged 8.73% for a 24-month loan.

Let’s say you have $8,000 in credit card debt that you would like to pay off. If you kept your credit card balance, you would end up paying $1,326 in interest. If instead you applied for a personal loan and paid it off over two years, you would end up paying $747 in interest, a difference of $579 in interest.

And keep in mind that these interest rates are just averages. LightStream, Select’s overall best choice for personal loans, offers APRs ranging from just 3.99% to 19.99% when you sign up for autopay, depending on your terms. So your savings can be even greater.

You can reduce the number of monthly payments you have

If you happen to have more than one credit card with a revolving statement balance, opting for a concise monthly payment with a personal loan could be helpful. Rather than concentrating your efforts in several places, you will have all your debts in one place and can devote your energy to paying them off. Also, the more money you invest in the personal loan, the faster you can pay it off and the less interest you will pay.

Disadvantages of using a personal loan to pay off credit card debt

However, using personal loans to pay off credit card debt is not without risk. Here are some cons to consider before applying.

Personal loans could lead to more debt

If you decide to go this route, it’s important to use a personal loan as a means to an end. Even if you use one to pay off your debt, you could quickly end up with credit card debt, as well as a personal loan for your old debt if you’re not careful.

If you take out a personal loan to pay off your credit card debt, be sure to immediately pay off your credit card balance with the money from the loan. Some lenders, like Marcus by Goldman Sachs Personal Loans, will do this automatically for you when you apply for a loan. Then, put a plan in place to pay off your loan and create a budget so you don’t overspend.

A lower interest rate is not guaranteed

Although there is a wide disparity between the average interest rates for credit cards and personal loans, there is no guarantee that you will get a better rate. Find out the exact interest rate you’re paying on your credit card and do your best to find a better interest rate with a personal loan. Factors such as your credit score, loan amount, and loan term can all affect the APR you qualify for.

Visit Select’s Personal Loan Marketplace to see which loans you are prequalified or preapproved for. It’s free, won’t impact your credit score, and lets you compare interest rates from different lenders.

Personal loans have fees

When researching different lenders, consider the fees you may be charged for the personal loan, which may include application fees, origination fees, prepayment penalties, late fees, repayment fees, or a payment protection insurance. If the interest rate difference is small between your credit card and your personal loan, the fees may negate any potential savings.

Best personal loans to pay off credit card debt

If a personal loan sounds like a viable solution for your financial needs, here are a few. Choose from Select’s preferred lenders. Select ranked LightStream as the best personal lender overall due to its low interest rates and flexible terms, but PenFed is also good for those looking for smaller loans and Discover for those looking for quick funding. These loans also have no origination or prepayment fees.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.99% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

PenFed Personal Loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, home improvement, medical bills, car financing and more

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Discover personal loans

  • Annual Percentage Rate (APR)

  • Purpose of the loan

    Debt consolidation, home improvement, wedding or vacation

  • Loan amounts

  • Terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Select’s personal loan marketplace

Visit Select’s Personal Loan Marketplace to see which loans you are prequalified or preapproved for. It’s free, won’t impact your credit score, and lets you compare interest rates from different lenders.

Another way to consolidate credit card debt

While taking out a personal loan is a solid option for paying off credit card debt, another way to go is to take out a balance transfer credit card that comes with an introductory APR of 0%. With this type of card, for a fixed term, its balance will not bear interest as long as you make the minimum payment each month.

For example, the Wells Fargo Reflect® Card offers 0% initial APR for 18 months from account opening (after, 15.24% – 27.24% variable APR) on eligible purchases and balance transfers. (See rates and fees.) It is also possible to extend this 0% APR for up to three additional months by making the minimum payments on time throughout the introductory and extension periods. Balance transfers made within the first 120 days are also eligible for the introductory rate.

This means you could end up earning up to 21 months of interest-free financing on your current debt as long as you make the minimum payments. If, for example, you have $8,000 in credit card debt to pay off and you can make monthly payments of $400 during the 0% introductory period, you won’t pay a penny in interest.

Keep in mind, however, that there is usually a 3% fee to transfer a credit card balance.

If a personal loan doesn’t meet your needs, consider using a 0% intro APR credit card such as one of the following listed below:

Citi® Diamond Preferred® Card

  • Awards

  • welcome bonus

  • Annual subscription

  • Introduction AVR

    0% for 21 months on balance transfers; 0% for 12 months on purchases

  • Regular APR

  • Balance Transfer Fee

    5% of each balance transfer; At least $5. Balance transfers must be completed within 4 months of account opening.

  • Foreign transaction fees

  • Credit needed

Advantages

  • No annual fee
  • Balances can be transferred within 4 months of account opening
  • One of the longest introductory periods for balance transfers

The inconvenients

  • 3% foreign transaction fee

Hunt Unlimited Freedom®

  • Awards

    Enjoy 5% cash back on travel purchased through Chase Ultimate Rewards®, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and restaurant meals, including eligible takeout and delivery services, and 1.5% on all other purchases

  • welcome bonus

    Earn an extra 1.5% on everything you buy (up to $20,000 spent in the first year) – worth up to $300 in cash back. That’s 6.5% on travel purchased through Chase Ultimate Rewards®, 4.5% on restaurants and drugstores, and 3% on all other purchases.

  • Annual subscription

  • Introduction AVR

    0% for the first 15 months from account opening on purchases and balance transfers

  • Regular APR

  • Balance Transfer Fee

    Introductory fee of $5 or 3% of each transfer amount, whichever is greater, on transfers made within 60 days of account opening. After that, either $5 or 5% of each transfer amount, whichever is greater.

  • Foreign transaction fees

  • Credit needed

Wells Fargo Active Cash® Card

On the Wells Fargo secure site

  • Awards

    Unlimited cash rewards of 2% on purchases

  • welcome bonus

    Earn a $200 cash rewards bonus after spending $1,000 on purchases in the first 3 months

  • Annual subscription

  • Introduction AVR

    0% intro APR for 15 months from account opening on eligible purchases and balance transfers; balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    Variable APR of 17.24%, 22.24% or 27.24% on purchases and balance transfers

  • Balance Transfer Fee

    3% introductory fee ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)

  • Foreign transaction fees

  • Credit needed

At the end of the line

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.