How to use a personal loan for credit card debt
By Jackie Lam
Reviewed by Kimberly Rotter
Jan 30, 2023 - Updated May 29, 2023
Read time: 9 min
A credit card consolidation loan can help you crush your credit card debt.
Paying off credit card debt with a personal loan can help lower the cost of your debt and improve your credit score.
Moving from variable-rate credit cards to a fixed-rate personal loan removes uncertainty about the future cost of your debt.
Ready to crush your debt? You’ve got options. One strategy that might be right for your situation is to take out a personal loan (AKA a credit card consolidation loan). Going this route can help you speed up your payoff plan, lower your cost, and improve your credit score. Bam.
Researching personal loans for credit card debt isn’t hard if you know what to look for. We’ll break it down.
What is a credit card consolidation loan?
A credit card debt consolidation loan is when you use one loan to pay off multiple credit card debts. Credit card consolidation takes different forms: a home equity loan, a balance transfer credit card, a home equity line of credit (HELOC), or a personal loan.
For many folks, personal loans are the go-to choice for credit card consolidation. Here are a few reasons why:
Personal loans are installment loans. You borrow a lump sum upfront and pay it back through consistent monthly payments over a set period of time. You’ll know your payoff date. Another benefit is that installment debt doesn’t factor into your credit utilization ratio. That’s your credit card balances compared to the limits on your card. If you owe $900 on a card with a $1,000 limit, the utilization is 90%. Credit scores go down as utilization goes up (and vice versa), so moving your balance from a credit card to a loan can bump up your credit score.
Fixed interest rate
Personal loans have a fixed interest rate for the entire term. Your payment won’t change. Ever heard that “the Fed is raising interest rates again”? When that happens, credit card debt gets even more expensive. But rising interest rates don’t affect personal loans in repayment. Your rate is locked for the life of the loan.
Personal loans are usually unsecured debt, meaning you don’t need to own a home or sign over the title to your car to get one.
How to find the best personal loan for credit card debt
Consolidating credit card debt with a personal loan can be easy. Here are the steps you can take.
1. Prequalify and get offers
You’ll start by shopping around to compare loans that are available to someone with your credit score. You’ll want to take notes on interest and fees, the payment amount, and whether you trust the lender to provide helpful information and guidance throughout the process.
It’s a good idea to get prequalified with two or three lenders who can give you loan options without doing a hard pull on your credit. Any time you apply for credit, the lender makes a hard pull (an inquiry) to check your credit report. Each inquiry can lower your credit score by a few points, so you don’t want to apply more often than necessary. The best case scenario is to apply once after you’ve prequalified for the loan you want. Prequalifying isn’t a guarantee but it’ll tell you where you stand.
2. Apply and provide requested documentation
As part of your application, or after you submit your initial application, the lender will tell you what documentation you need to provide. For example, you might be asked for your most recent pay stub. Be sure to include payoff amounts and account numbers for all the debts you want to pay off.
How a personal loan for credit card debt works
Debt consolidation loans are special. If you want to, you can have the lender send your loan funds directly to the credit cards you are paying off, without ever letting the money hit your account.
That’s different from the way typical personal loans work, which is that you get the money in your bank account and can spend it just about any way you want.
You can get your debt consolidation loan in your bank account and pay off your creditors yourself. But letting the lender do it can help you get your debts paid off faster so you can avoid racking up even one more day of interest charges. A direct payoff strategy can also get you a permanent discount on your personal loan interest rate.
What you should know before you take out a debt consolidation loan
Consolidating credit card debt can make the most financial sense for you, but you should only commit to a program if you understand it. Here are some key details to know:
You don’t have to close out your credit cards when you get a consolidation loan, but you might want to.
You don't usually have to close out, or cancel, your existing credit cards when you pay off multiple debts with a personal loan.
That being said, consider what led you to have high credit card debt. If overspending contributed to your situation, it might not be a bad idea to shut down your cards for a while. If you consolidate your credit card debt with a loan and then run up those balances again, you could end up with even more debt and a much worse financial situation.
Credit card consolidation can help you get out of debt faster.
Consolidating debt can make it go away quicker. If you get a lower interest rate but keep making the same payment, more of your payment will go toward the principal and you’ll pay off your debt faster.
The minimum payment on a personal loan is designed to get your debt paid off within five years or less. The minimum payment on credit cards might only be enough to get you out of debt after 20 or 25 years.
Credit card consolidation can lower your monthly payments.
Credit card consolidation might lower your total monthly debt payment. If you are making several high minimum payments, consolidating your debts to a single loan can leave you with a monthly loan payment that’s lower than the total of all those credit card minimum payments.
But your payment amount also depends on your loan term. If you want to get out of debt faster, opt for a higher monthly payment. If you need relief on your budget, opt for a lower monthly payment, although that means you’ll pay for a longer period of time.
Pros and cons of a personal loan for credit card debt
Personal loans offer these advantages:
Unsecured. No home equity or other assets needed.
Fixed interest rates. Your rate won’t go up as long as you have the loan.
Lower interest rates. Personal loan interest rates tend to be significantly lower than credit card interest rates, so you can save money.
Short approval and processing times. Apply online in a matter of minutes. Some applicants can be approved on the same day and receive the funds in 24-72 hours.
Improve your credit. A personal loan can help you quickly improve your credit scores.
Here are some potential drawbacks:
Need at least fair credit. You can get a personal loan with bad credit but it might not save you money compared to your credit cards. If your credit is less than perfect, it’s a good idea to discuss your situation with a loan consultant to determine what option will help you the most.
Higher interest rates than secured loans. If you have an asset, such as a home, you might save money with a secured loan.
Potentially higher monthly payment. Credit card minimum payments are set very low to keep people in debt and paying interest, while personal loan payments are designed to pay off the debt. That means your loan payment could be higher than the required minimum payments on your credit cards.
Not a good payoff strategy for the undisciplined. Consolidating credit card debt with a personal loan—or any loan—can backfire if you don’t have a strong plan to avoid repeating the debt. If your debt was caused by overspending, think about what changes you’ll make going forward before you apply for the loan.
Top 3 reasons to apply for a personal loan for credit card debt through Achieve
The Achieve personal loan offers a few advantages over other personal loans.
1. Achieve respects your comfort zone. We get it. Credit card debt is stressful and overwhelming. Debt fatigue—where you're exhausted thinking about and managing your debt—is real.
Achieve understands what you're going through and helps make things easier. We won’t recommend a debt consolidation loan if we don’t think it’s the right solution for your situation. Our loan consultant will help you choose the right path forward even if it’s a product we don’t offer.
2. Achieve offers multiple ways to get a discount. You can ask for a permanent discount on your interest rate if:
At least 85% of your loan funds are used to directly pay off creditors
You can show evidence of retirement savings (don’t worry, it’s not used as collateral)
You apply with a qualified co-applicant
3. Achieve is flexible. To meet you where you're at, Achieve offers loan repayment terms between two and five years, and loan amounts ranging from $5,000 to $50,000.
Jackie is an Achieve contributor. She is an accredited financial coach (AFC®) who has written for Business Insider, BuzzFeed, CNET, USA Today's Blueprint, and others. She coaches artists and freelancers.
Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.
Frequently asked questions
Does consolidating my credit cards hurt my credit score?
Consolidating credit card debt can help your score a lot (after hurting your score a little). Here's how it works:
Applying for any loan generates a hard inquiry on your credit report. Each hard inquiry temporarily drops your credit score by a few points.
2. Account age
When you add a new loan, you lower the average age of your accounts. The length of your credit history affects your credit score, so lowering it could cause a small dip in your score.
3. Utilization ratio
Replacing your credit card balances with a new installment loan can raise your credit score immediately. That’s because one of the biggest factors in credit scoring is credit utilization, or your credit card balances compared to your credit limits. For example, if you owe $950 on a card with a $1,000 limit, your credit utilization is 95%. As utilization goes up, credit score goes down. Maxing out a card, or almost maxing it out, hurts your score a lot.
Personal loans don’t factor into your utilization ratio. If you pay off all of your credit cards with a personal loan, your utilization drops to zero and you can expect to see your credit score go up the next time it’s updated.
4. Payment history
Payment history is one of the most important factors in your credit score. As you make on-time payments on your installment loan, you will be contributing to a positive credit history. This helps build a better score over time.
What are my alternatives to using a personal loan to pay off credit card debt?
The most popular alternatives to a personal loan for credit card consolidation are a home equity loan or a balance transfer credit card. You can also consider a debt resolution program. Let's take a closer look at each option:
Home equity loan
If you’re a homeowner with sufficient equity, you could borrow against your home equity. The payment might be smaller than a personal loan payment because the term is typically longer. For this reason, you might not save money even with a lower interest rate. Taking longer to pay off a debt means you’ll pay more interest over time. However, a lower payment can provide needed breathing room in your monthly budget right now.
Balance transfer credit card
Balance transfer credit cards allow you to pay off your other credit cards at zero percent or very low interest for a limited time. During this promotional period, your entire payment goes toward reducing the balance, which can help you knock down your balance a lot faster.
Balance transfers typically cost 3%-6% of the amount being transferred. If you don’t pay off your balance by the end of the low interest promotional period, you’ll start paying the regular interest rate on the balance that remains.
If your debt is overwhelming and you are having trouble qualifying for a personal loan, you may want to consider a debt resolution program as an affordable alternative.
A debt resolution program can help you settle your debts for less than you owe, faster than by making minimum monthly payments. The Achieve Resolution program starts with a free debt evaluation. Our expert team will listen to your situation and develop a personalized plan to help you resolve your credit card debt.