Are you saddled down with credit card debt? It can be a struggle to juggle monthly bills and the minimum payments owed to creditors. Furthermore, continuing to pay only the minimum each month means you’ll likely remain indebted to the credit card issuers for several months or years to come.
A personal loan could be a viable option to find relief. But there are some drawbacks to consider.
In this guide, you’ll learn how to pay off your high-interest credit card debt with a personal loan, the benefits and drawbacks of this method and where to get help with your balances if they’re too excessive to manage.
How to Pay Credit Cards Using a Personal Loan
Below is a breakdown of how to use a personal loan to pay off credit card debt:
- Step 1: Explore personal loan options. Not all personal loans are the same. So, you want to shop around with traditional banks, community banks, credit unions and online lenders to find a product that offers a competitive interest rate and other favorable loan terms. It’s also best if the lender doesn’t assess origination fees and prepayment penalties. Most importantly, consider lenders that feature an online pre-qualification tool on their website that lets you gauge your eligibility for a loan and possible terms with no impact on your credit score.
- Step 2: Use the loan proceeds to pay off your outstanding credit card balances. Most lenders don’t stipulate how the funds can be used. But you want to promptly pay the credit card issuers to avoid the temptation to spend the loan proceeds elsewhere. Otherwise, you risk accumulating even more debt.
- Step 3: Avoid using credit cards. To piggyback off the last point, paying your credit cards off and using them again defeats the purpose. You’ll have both the credit card debt and personal loan debt to worry about, which is bad news for your budget.
- Step 4: Start repaying your personal loan right away. Now that credit card debt is gone, you can use the money that was once allocated for minimum payments to pay down your personal loan. If possible, pay more than the extra each month to accelerate repayment and save a bundle on interest.
Is It a Good Idea to Use a Personal Loan to Pay Off Credit Card Debt?
Consider the benefits and drawbacks before you decide to use a personal loan to pay off credit card debt.
Considering Risks and Benefits
Pros of Using a Personal Loan to Pay Off Your Credit Cards
Here are some key advantages to keep in mind:
- You can escape the minimum payment trap and free up funds in your budget.
- You’ll streamline the repayment process by only paying one creditor instead of several each month.
- You can save a bundle in interest if the rate on the personal loan is lower than what you’re currently paying.
- You can get out of credit card debt quickly and pay off your personal loan at a faster rate than you would by paying the minimum to the credit card issuer each month.
- You can improve your credit score since your credit utilization, or the amount of available credit you have in use, will drop when you pay off the credit cards.
Cons of Using a Personal Loan to Pay Off Your Credit Cards
Unfortunately, there are also downsides to paying off your credit cards with a personal loan:
- You could pay steep origination fees to take out a personal loan.
- You could rack up more debt if you use the personal loan for some other purpose or pay off the cards and use them again.
- You may not qualify for a personal loan with a low-interest rate if your credit score is low.
- You could struggle to make the personal loan payments if you get a sizable loan with a short repayment period.
- Your credit score could decrease if the credit card issuer closes the accounts once the balances are paid in full.
Get a No-Obligation Consultation To Take Out A Consolidation Loan To Pay Off Your Credit Card Debt
Not sold on the idea of taking on more debt to consolidate your credit card debt? Explore these viable alternatives:
- Credit counseling through a non-profit agency (only work with reputable entities that offer free sessions from certified credit counselors)
- A balance transfer credit card (if you’re able to pay off your balances within the promotional interest period)
- A hardship program through your credit card issuer (if you’re eligible and can meet the criteria to remain in the program)