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Consolidating Credit Card Debt With a Personal Loan

Replacing credit card debt with a personal loan can save you money and lower your interest rate, but isn’t right for everyone.

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By Anna Baluch

Written by

Anna Baluch

Contributor

Anna Baluch is a personal finance writer with more than six years of experience. Her work has appeared on CNN, New York Post, and U.S. News & World Report.

Edited by Meredith Mangan

Written by

Meredith Mangan

Senior editor, Credible

Meredith Mangan is a senior editor at Credible and expert on personal loans.

Updated October 22, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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Credible takeaways

  • Using a personal loan to consolidate credit card debt can give you a fixed monthly payment and defined payoff date.
  • Debt consolidation combines one or more debt accounts into a single loan and a single monthly payment.
  • It’s possible to get a lower APR and/or lower monthly payment by consolidating credit card debt.
  • Consolidating credit card debt can have a positive and rapid impact on your credit score.

Credit card debt and debt delinquency rates are on the rise — at the end of 2023, 8.5% of credit card balances were delinquent, according to the New York Federal Reserve. If you’re struggling to pay credit card minimums or would simply prefer a lower payment, you may have options. One of which is to pay off your cards with a personal loan, trading multiple payments for one lower monthly payment with a set payoff date.

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How does credit card consolidation work?

Credit card consolidation refers to paying off one or more credit card debts with a new loan, ideally at a lower annual percentage rate (APR) and with a lower monthly payment. It can help you save money on debt payments, and can simplify the debt management process — replacing several monthly payments with one.

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A note on APR

The APR accounts for the interest rate and any upfront fees a lender charges for a loan. It makes for a better comparison tool between loans than relying only on the interest rate.

While a personal loan is not the only way to consolidate credit card debt, it’s one of the most accessible and has a slew of advantages relative to other debt consolidation methods (which we’ll get into below). But, instead, you could use a home equity loan (if you have sufficient home equity) or a 0% APR balance transfer credit card (if you can qualify and can pay off the transferred amount within the promotional period).

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What is a personal loan for debt consolidation?

A personal loan that’s used for debt consolidation is typically unsecured, which means there’s no collateral (like your home) attached to the loan. Personal loans are offered by banks, credit unions, and online lenders. Loan amounts often range from $1,000 to $50,000, but some lenders offer larger loans. Repayment terms are typically available from two to seven years. Upfront fees may include application fees and origination fees, which can be 1% to 12% of the loan amount.

Once the loan is approved, the lender sends the loan amount to you, which you then use to pay off your cards. Some lenders also offer to pay your creditors directly, and may offer a discount if you elect to do so. 

Check Out: Best Debt Consolidation Loans

Personal loan for debt consolidation pros

There are a host of reasons to consider using a personal loan to consolidate credit card debt.

  • Lower APR: Personal loans generally have lower APRs than credit cards. According to the Federal Reserve, the average APR for a credit card was 21.86% in August 2024, while the average APR for a 24-month personal loan was 12.33%.
  • Decreased  credit utilization (improved credit): One major benefit to paying off credit cards is that you can significantly decrease your credit utilization. Since this metric can affect up to 30% of your credit score, decreasing it can result in a big (and quick) credit score boost. Just as long as you keep your cards open.
  • Fixed payments and interest rate: Since most personal loan rates and payments are fixed, you can know what your payment will be month to month and budget accordingly.
  • One monthly payment: If you consolidate several credit card debts, you'll only have one monthly payment to manage. This can help you avoid late fees and missed payments which can hurt your score and increase your debt.
  • No collateral: Since most personal loans are unsecured, they don’t require collateral. This means that if you can’t pay back the loan, you don’t risk losing an asset.
  • Fast funding time: Personal loans typically fund within days, and some can fund the same day you apply.
  • Prequalification: Most lenders let you prequalify for a loan before applying, which means you can get a rate estimate after a short questionnaire without hurting your credit. Prequalification isn’t an offer of credit, but can be a good way to compare lenders, APR estimates, and fees. Know that once you apply for a loan, a hard pull will be conducted and your credit score may be impacted.
  • Direct pay: If used to consolidate credit card debt, most lenders can direct the loan funds to your creditors. Some even offer a rate discount for doing so.
  • Set pay-off period: With an installment loan, like a personal loan, there’s a defined end date. Credit card payments can continue indefinitely.

Learn More: How To Consolidate Credit Card Debt

Risks and considerations of debt consolidation

A personal loan isn’t for everyone. Before you consolidate your credit card debt, keep the following in mind.

  • No guarantee of a lower APR: If you have fair or poor credit, it may be challenging to get a lower APR with a personal loan. However, some lenders let you apply with a cosigner, which is someone who agrees to pay back the loan if you default. A cosigner with good credit can improve your chances of getting approved or can lower your rate.
  • May not solve overspending: Consolidating credit card debt can help you pay debt off faster and potentially save you money. But it may not stop you from overspending. If you run up balances on your cards again, you could negate any progress you made paying off your previous debt.
  • Fees: Some lenders charge upfront fees in addition to interest, which can reduce the amount you receive. Origination fees are a common example and can be up to 12% of the loan amount. Take this into consideration when calculating how much you need to borrow to pay off your credit card debt.

Check Out: Pros and Cons of Debt Consolidation

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Note

Origination fees are accounted for in the loan’s APR.

How to consolidate credit card debt with a personal loan

Here are the steps to consolidate credit card debt with a personal loan.

  1. Determine how much to borrow: First, add up all your credit card balances, get a sense of the average APR, and add up your monthly payments. Once you have those numbers, you can determine how much to borrow, and what rate and/or monthly payment amount you need to beat.
  2. Check your credit: Review your credit for any inaccuracies and report them to the appropriate credit bureaus. Fixing mistakes could increase your credit score. You can get a free copy of your credit report from AnnualCreditReport.com.
  3. Shop around and prequalify: Find a few options and compare APR ranges, terms, and fees. You can prequalify with multiple lenders without impacting your credit score. On the prequalification form, you may have to enter your Social Security number so the lender can run a soft credit pull in order to deliver a customized rate estimate.
  4. Apply: Choose a lender and fill out the application. Once you formally apply, the lender will perform a hard credit pull, which may temporarily hurt your score. You may also have to submit documents such as a government-issued ID, pay stubs, and W-2s.
  5. Consolidate your debt: Upon approval, you'll be asked to sign the loan agreement. Once you do, the lender will send the money either directly to your creditors or to you. If you receive the funds, repay your credit card debts right away. Many lenders can send funds as soon as the same or next business day once you’re approved.

Learn More: How to Consolidate Credit Card Debt

Other ways to consolidate credit card debt

Here are a few other ways you can consolidate your credit card debt.

  • Balance transfer credit card: A 0% APR balance transfer card allows you to transfer one or more credit card balances with no interest charged on the amount transferred for a certain period, such as 12 to 21 months. However, it’s best to pay off the balance before the end of the promotional period. Once it’s over, the standard APR resumes on the card. Expect to pay a 3% to 5% balance transfer fee as well.
  • Home equity loan: A home equity loan is similar to a personal loan in how it functions, but your home is pledged as collateral and the loan could take a month or more to close. However, if you default, you risk losing your home. Home equity loans have longer repayment terms, from 5 to 30 years. Lenders often require that you have at least 20% home equity to qualify.

How credit card debt affects your credit score

Your payment history is the most important factor in determining your credit score — it contributes 35% — so your credit card payments (whether they’re late or on time) have a large impact. However, payment history is not the only factor to consider.

Your credit utilization ratio is another. It can contribute up to 30% of your credit score and is the amount of credit you’re using relative to what’s available to you. So, if you maintain high credit card balances (relative to your credit limit), your credit utilization is probably also high, which can lower your score.

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Tip

Paying off credit card debt with a debt consolidation loan can quickly reduce your credit utilization and result in a quick credit score boost.

Credit card debt also contributes to your credit mix (which accounts for 10% of your score), amounts owed (30%), and the length of credit history (15%). Note that replacing credit card debt with a personal loan could decrease your credit utilization and improve your credit mix, but may not have a big impact on amounts owed. It also could shorten the length of your credit history.

Consolidating credit debt with a personal loan FAQ

Where can you get a personal loan for credit card debt consolidation?

Personal loans are widely available. You can find them at banks, credit unions, and with online lenders. Shop around and compare lenders as each has their own rates, terms, fees, and eligibility requirements. You can also prequalify with multiple lenders to see customized estimates of your rates and terms before you apply.

Is consolidating credit card debt with a personal loan a good idea?

Credit card debt consolidation can be a great idea if you want to simplify the debt payoff process and save money on interest. However, if you can’t qualify on your own, you might be able to also get a cosigner to apply with you and improve your chances. A cosigner should have good or excellent credit and a decent income. Just know that they become responsible for loan payments if you default, and late payments on your part can hurt their credit.

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Meet the expert:
Anna Baluch

Anna Baluch is a personal finance writer with more than six years of experience. Her work has appeared on CNN, New York Post, and U.S. News & World Report.