Personal Loan vs. Credit Card Debt

If you're carrying high-interest credit card debt, you've probably wondered whether a personal loan could help. Debt consolidation with a personal loan is one of the most popular strategies — but it's not always the right choice.

How Personal Loans Work for Debt Consolidation

A personal loan gives you a lump sum at a fixed interest rate, which you repay in fixed monthly installments over a set term (usually 2-7 years). To consolidate, you take out a personal loan, pay off your cards, and then make a single monthly payment on the loan.

Interest Rate Comparison

• Average credit card APR: 22-28% (variable)
• Average personal loan APR: 8-15% for good credit, 15-25% for fair credit (fixed)

On $10,000 of debt, dropping from 24% to 12% saves over $3,000 in interest over three years.

Advantages of Using a Personal Loan

• Lower interest rate: Most borrowers with decent credit qualify for rates well below credit card APRs
• Fixed payment schedule: You know exactly what you owe each month and when the debt will be gone
• Simplified payments: One payment instead of managing multiple minimums
• Forced payoff timeline: Loans have a defined end date
• Potential credit score boost: Paying off revolving debt with an installment loan can improve your credit mix

Disadvantages to Consider

• Origination fees: Many loans charge 1-8% upfront
• Temptation to reuse cards: If you pay off cards but keep using them, you'll end up worse off
• Longer terms can cost more: A lower payment over 7 years might cost more total interest
• Credit requirements: The best rates require good to excellent credit

When a Personal Loan Makes Sense

• Your credit qualifies you for a rate at least 5-7% lower than your cards
• You have a plan to avoid running up card balances again
• You can afford the monthly payment comfortably
• The math works after factoring in origination fees

When to Skip the Personal Loan

• You can pay off the cards within 6-12 months with aggressive payments
• Your credit only qualifies you for rates similar to your cards
• You haven't addressed the spending habits that created the debt
• A 0% APR balance transfer card is available

How to Apply

• Check your credit score and review your credit report
• Get pre-qualified with 3-5 lenders (soft credit pull)
• Compare APRs, fees, terms, and monthly payments
• Choose the loan that minimizes total cost, not just monthly payment
• Use the funds to pay off cards immediately