Using a Personal Loan to Pay Off Credit Card Debt

Credit card debt can quickly become a cycle of endless payments. Luckily, there are several solutions if you want to pay off your debt faster.

One option is to apply for a personal loan to effectively shift your debt from your credit card issuer to a personal lender and hopefully snag a lower interest rate and better repayment options. That way, you’re more likely to pay less interest in the long run, and you can eventually become debt-free. There are also a few other options worth considering if you want to consolidate debt efficiently and cheaply.

Select below 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 lately as Americans continue to deal with it record high inflation for essential necessities like gasoline and groceries. Unfortunately, such trends can create a slippery slope, as credit cards typically have high interest rates, allowing consumers to run 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 that the latest data from the Federal Reservethe average credit card interest rate in May 2022 was 15.13%. In 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 want to pay off. If you kept the balance on your credit card, you would end up paying $1,326 in interest. If you applied for a personal loan instead and paid it off over two years, you would end up paying $747 in interest — that’s a $579 difference in interest.

And remember, these interest rates are just averages. Luminous flux, Select’s best overall 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 your monthly payments

If you happen to have more than one credit card with a revolving statement, it can help to settle on a clear monthly payment with a personal loan. Instead of concentrating your efforts in several places, you have all your debts in one place and can focus your energy on paying them off. The more money you spend on the personal loan, the faster you can pay it back and the less interest you pay overall.

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 a few cons to consider before applying for one.

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 debts, you could quickly end up with credit card debt again, along with a personal loan for your past debts, if you’re not careful.

If you take out a personal loan to pay off your credit card debt, make sure you pay off your credit card balances immediately with the cash from the loan. Some lenders, like Marcus of Goldman Sachs personal loans, does this for you automatically when you apply for a loan. Then make a plan to pay off your loan and create a budget so you don’t overspend.

A lower interest rate is not guaranteed

Although there are big differences between the average interest rates on credit cards and personal loans, there is no guarantee that you will end up with a better interest rate. Find out the exact interest rate you are paying on your credit card and do your best to find a better rate with a personal loan. Factors such as your credit rating, loan amount, and term can all affect the APR you qualify for.

Check out Select’s personal loan marketplace to see which loans you are pre-qualified or pre-approved for. It’s free, doesn’t affect your credit score, and allows you to compare interest rates from different lenders.

Personal loans have fees

When researching different lenders, consider any fees you may be charged for the personal loan. This may include application fees, processing fees, prepayment penalties, late payment fees, repayment fees, or payment protection insurance. If the interest rate differential between your credit card and personal loan is small, the fees can wipe out any potential savings.

The best personal loans to pay off credit card debt

If a personal loan sounds like a viable solution to your financial needs, here are a few Choose from Select’s preferred lenders. choose rank Luminous flux as the best personal lender overall due to its low interest rates and flexible terms, however PenFed is also good for those who are looking for smaller loans and Discover for those looking for quick financing. These loans also have no origination or early repayment fees.

LightStream Personal Loan

  • Annual Percentage Rate (APR)

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

  • loan purpose

    Debt Consolidation, Home Improvement, Auto Financing, Medical Expense, Wedding and others

  • loan amounts

  • conditions

  • credit needed

  • incorporation fee

  • Penalty for Early Payout

  • late fee

PenFed Personal Loans

  • Annual Percentage Rate (APR)

  • loan purpose

    Debt Consolidation, Home Improvement, Medical Expense, Auto Financing and more

  • loan amounts

  • conditions

  • credit needed

  • incorporation fee

  • Penalty for Early Payout

  • late fee

Discover personal loans

  • Annual Percentage Rate (APR)

  • loan purpose

    Debt consolidation, home improvement, wedding or vacation

  • loan amounts

  • conditions

    36, 48, 60, 72 and 84 months

  • credit needed

  • incorporation fee

  • Penalty for Early Payout

  • late fee

Select’s personal loan marketplace

Check out Select’s personal loan marketplace to see which loans you are pre-qualified or pre-approved for. It’s free, doesn’t affect your credit score, and allows you to 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 option is to sign up for one Funds transfer credit card with an introductory 0% APR. This type of card does not earn interest on the balance for a period of time as long as you make the minimum payment each month.

For example the Wells Fargo Reflect® card offers an introductory 0% APR for 18 months from account opening (15.24% – 27.24% Variable APR thereafter) on purchases and qualifying balance transfers. (See Prices and Fees.) It is also possible to extend the 0% APR by three more months by making the minimum payments on time throughout the introductory period. Balance transfers within the first 120 days also qualify for the introductory rate.

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

Note, however, that transferring a credit card balance usually incurs a 3% fee.

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

Citi® Diamond Preferred® card

  • Reward

  • welcome bonus

  • Annual fee

  • Introduction APR

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

  • Regular APR

  • transfer fee

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

  • foreign transaction fee

  • credit needed

advantages

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

Disadvantages

  • 3% foreign transaction fee

Follow Freedom Unlimited®

  • Reward

    Enjoy 5% cashback on trips purchased through Chase Ultimate Rewards®, our premier rewards program that allows you to redeem rewards for cashback, trips, gift cards and more; 3% cashback on drugstore and restaurant dining purchases, including takeout and eligible home delivery, 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 cashback. That’s 6.5% on trips purchased through Chase Ultimate Rewards®, 4.5% on restaurants and drugstores, and 3% on all other purchases.

  • Annual fee

  • Introduction APR

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

  • Regular APR

  • transfer fee

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

  • foreign transaction fee

  • credit needed

Wells Fargo Active Cash® card

On Wells Fargo’s secure website

  • Reward

    Unlimited 2% cash rewards on purchases

  • welcome bonus

    Earn a $200 Reward Bonus after spending $1,000 on purchases in the first 3 months

  • Annual fee

  • Introduction APR

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

  • Regular APR

    17.24%, 22.24% or 27.24% variable APR on purchases and transfers

  • transfer fee

    Introductory fee of 3% (minimum $5) for 120 days from account opening, thereafter up to 5% (minimum $5)

  • foreign transaction fee

  • credit needed

bottom line

Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.

Virginia C. Taylor