Using a personal loan to pay off credit card debt

There are many ways to consolidate credit card debt. Among them is using a personal loan to pay off credit debt.

It’s possible to pay off credit card debt using a personal loan. But that doesn’t mean it’s always the best choice. Explore a little more about how personal loans work and how consolidating debt might affect your finances and credit.

Key takeaways

• When people talk about personal loans, they’re generally referring to relatively small, unsecured loans that are borrowed in a lump sum and then paid back in regular installments over time.

• Using a personal loan to consolidate or pay off credit card debt could help borrowers simplify payments or save on interest.

• Taking out one loan to pay another might alter how debt is repaid, but it won’t erase all repayment obligations.

• When it comes to managing debt, creating a repayment plan and budget to compare things like fees and interest can help you make the best choice for your situation.

Personal loans are one method you might consider if you’re trying to consolidate credit card debt. It won’t erase your debt completely. But it could simplify where you’re making repayments and the amount of each payment.

But a loan with more beneficial terms could make it easier to repay debt by simplifying your payments and helping save on interest. 

That’s because a debt consolidation loan might allow for taking multiple credit card accounts—with assorted payment dates and amounts—and turning them into a single payment. If a consolidation loan has a lower interest rate, that could help save on interest over time.

But keep in mind that debt consolidation may not be right for everyone. Loans often come with fees and demands of their own. Failing to meet the terms of the loan takes away from the benefits—and could result in an even more expensive loan.

The process of paying off credit card debt with a personal loan depends on a lot of factors, including the borrower’s credit, the lender and the type of loan. 

But here are some broad ideas about how the process might go:

1. Research options and apply for a personal loan.
2. Pay down or pay off existing credit card debt.
3. Start paying off your new loan.

Debt consolidation may not be right for all borrowers, so be sure to consider your own financial situation and spending habits. 

If a consolidation loan is something you’re considering, comparing loans and options before you apply can help you find the best rates and avoid unnecessary credit reviews, which typically involve hard inquiries. It’s also worth understanding other credit-scoring factors to get a good idea of how actions like opening a new loan, paying down debt and opening or closing a credit card might affect your credit rating.

You may find that paying off your credit card debt with a personal loan is a good strategic decision if it makes your payments more manageable and lowers your interest rate. You might also see benefits to your credit score if it helps diversify your credit mix or lower your credit utilization ratio.

As is true with most financial decisions, it helps to consider any potential drawbacks. Here are some important things to keep in mind if you’re planning to use a loan to pay off your credit card debt:

• Your debt is not fully erased. Personal loans can be used to pay off your credit card debt. But that debt is only transferred to another lender. You’re still responsible for paying off this loan, so it helps to have an actionable repayment plan in place. 

• Manage credit responsibly. Adding new charges on your credit card that you can’t afford to pay off could cause your debt to increase. But if you’re able to pay off your card each month, you could avoid paying interest on new charges.

• There may be fees. Personal loans could charge fees such as origination fees or late payment fees if you don’t make payments on time.

Taking out a personal loan is one way to consolidate your credit card debt. And it could be worth considering if the loan simplifies your payments and lets you save on interest to help you better manage debt.

But taking out a personal loan to pay off credit cards isn’t the right solution for everyone. Before applying for a loan, consider your financial situation and whether another credit card debt repayment strategy is better suited for you. 

You could also use CreditWise from Capital One. It’s free for everyone, and using it won’t hurt your credit. Plus, it has a helpful tool called the Credit Score Simulator, which can tell you how certain financial decisions, including taking out a personal loan and paying down credit card debt, could affect your credit.