How to pay down credit card debt with a personal loan

Q: What is the fastest way to pay off credit card debt?

The fastest method is the one that works for you. So you could get a personal loan to consolidate your debts, try the snowball method, pay more than the monthly minimum on your credit, use the equity in your home, or do a balance transfer to a no- or low-interest credit card.

Q: Can I convert credit card debt to a loan?

You can. This is known as a debt consolidation loan. You use the loan to pay off your credit cards and you’re left with one monthly payment, which is easier to budget for and manage.

Q: How to pay off $10,000 credit card debt?

While the obvious answer would be ‘as quickly as possible,’ it should be in a way that works with your salary, time and access to products. You could use the snowball method of making extra or higher-than-minimum payments on your debt until it’s paid off. You can also apply for a debt consolidation loan.

Q: Is it worth it to get a personal loan to pay off debt?

It depends. Getting a personal loan means moving from multiple higher monthly payments to one, lower-interest payment. This only works if you don’t rack up more debt on your credit cards.

Renee Sylvestre-Williams

August 21, 2024

Credit card debt comes with a high interest rate. It’s an obvious statement but considering the average interest rate sits between 20.99 to 29.99%, it’s in your best interest to pay it off as quickly as possible so you don’t rack up more debt.

If you don’t have the cash to pay off your credit card, a personal loan can help you pay down the debt faster and you won’t pay as much in interest. This is known as debt consolidation as you can borrow money on a personal loan to pay off one or multiple high-interest debts. Once you’ve paid off the various debts, you’ll have one monthly loan to pay off at a lower interest rate.

Also read: How to pay off your credit card: 8 ways to reduce interest charges

What are the benefits of using a personal loan to pay off credit card debt?

Using a personal loan to pay down credit card debt is known as debt consolidation because you can borrow money on a personal loan to pay off one or multiple high-interest debts. Once you’ve paid off the various debts, you’ll have one monthly payment instead of making multiple monthly payments. That makes it easier to manage your budget and be consistent with your payments.
You may get a lower interest rate. Generally speaking, personal loan interest rates are lower than the credit card rates. The rates can range from 7-17%, with an average rate of 9.32% depending on your credit score. The better your score, the lower your interest rate.
As odd as it sounds, using a personal loan can help your credit score because it’s a different form of credit utilization than credit cards. It shows lenders you can carry different types of debt responsibly.

What are the downsides of using a personal loan to pay off credit card debt?

One of the downsides is you’re still carrying debt, which can have an impact on your credit score. You can avoid this by paying it down as quickly as possible.
You can also fall into a debt spiral. Using a personal loan to consolidate and pay off credit card debt only works if you don’t rack up new debt on your credit card.
The interest rate may not be lower. As we mentioned before, personal loans have different interest rates depending on your credit score. If your score is over 800 – which is considered great – you may get a low interest rate. If it’s below 600, you may get a higher interest rate, which won’t save you a lot of money compared to a credit card interest rate.
Personal loans have fees such as an origination fee, which can increase the amount of the loan and the monthly payment. Remember to factor these fees into your monthly payment.

Alternatives to using a personal loan for credit card debt

Personal loans aren’t the only way to pay down credit card debt. You can transfer the debt in a credit card balance transfer. That means applying for a card with a lower interest rate or has a no-interest offer for a specific period of time, usually 3-6 months. You get that no-interest grace period where you can pay off your debt without monthly interest charges.

Check out the best balance transfer credit cards

Consolidate your debt and reduce your interest payments with a balance transfer

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There are downsides to this method. The first is that you may not pay off the entire amount due to the offer, so you’re back in the same position of having to pay off credit card debt with a high interest rate. The other con is that your application may not get approved or if it does, it may be for a lower amount than your debt, so you’re still stuck with high interest and more than one monthly payment.

Another alternative is the snowball method, where you go hard and make extra or higher-than-minimum payments on your highest debt first, then work your way through all your other credit cards until you’ve paid off everything. The advantage is that you can pay off your highest-interest loan quickly but the disadvantage is you may not have enough money to do the snowball method.

If you own a home, you can use the equity to get a loan or line of credit and use that to pay off your credit card debt. Interest rates on these loans tend to be lower compared to credit cards.

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