Tips on How to Pay Off Credit Card Debt with Personal Loan  

In 2022, 82% of 10 U.S. adults had a have credit card, and roughly half of them carry unpaid balances from month to month, according to analysis from the U.S. Federal Reserve.¹ In separate communications, the Federal Reserve also notes, “heavy revolvers” — individuals who carried a balance every month on their credit card for the last year — pay more than $60 in interest each month on average. “Light revolvers” — individuals who carried a balance on their credit card in 1 to 11 months of the last 12 months — pay approximately $15 in interest each month.²

Paying hundreds or even thousands of dollars of credit card interest a year is not just a drain on your personal finances. Carrying a credit card balance can also lower your credit score, if your credit utilization ratio is too high.^3,4 And a bad credit score, in turn, can drive up other costs—for your car loan, insurance, or cell phone.^5,6

You may even be managing multiple credit card balances. In this case, consolidating all your credit card debt under one loan could simplify your personal financial management and help you avoid late payments, interest charges, and the possible fees and interest rate increases associated with missing payments.

If your balance is high, a personal loan may be better for paying off credit card debt. Personal loans tend to carry a lower interest rate than credit cards, which may help make your payments more affordable.⁷ While there are no hard-and-fast rules, several factors will determine whether you should opt for a personal loan to pay off credit card debt—and which kind of loan.

One factor is how much debt you have to transfer. Another factor is your credit score, which could play a deciding role—from the interest you pay to whether you can even qualify for a loan.⁸ Your debt-to-income ratio may also be examined.

Secured loans—such as a home equity loans—may be easier to get, with lower interest rates and higher borrowing limits than unsecured loans. Using your home as collateral lowers the risk to the lender but raises yours—you could lose the roof over your head if you default.⁹ Approvals for unsecured loans are typically based on available financial data and credit scoring.

Whether secured or unsecured, personal loans are generally paid in monthly installments over a fixed period that ranges from one to five years. You might use a debt repayment calculator to figure out how much you will actually pay on the loan. Also be sure to note any application, origination, prepayment, and late fees.

The good news is that, unlike revolving credit card debt, carrying a personal installment loan does not tend to hurt your credit rating. It might even bump up your credit score, if you pay on time.¹⁰ 

Online lending marketplaces provide plenty of comparisons and reviews of personal loans. 

While banks, credit unions, and other traditional financial services companies dominate the market for personal lending,  research from the Federal Reserve has shown that fintech lenders commanded a 14% share of the market at the end of 2022.¹¹ Personal lending is unique to each person and their financial situation, but experts suggest that some consumers can save by borrowing money to pay off their credit card debt and boost their credit score in the process.^10,12

Planning, budgeting, and economizing could improve your chances of success in paying down any debt. You should consider plotting exactly what amount you will pay every month on your new loan or balance transfer card, and how you will find the money. Otherwise, late fees and increased interest rates could set you back again.

Think about how you got into this situation in the first place. If non-essential spending is the culprit, consider identifying those areas of heavy spending and cut back. Otherwise, new debt could begin to balloon the moment you take out a loan to pay off your old debt.