loan to pay off credit cards


loan to pay off credit cards

Using a Personal Loan to Pay Off Credit Cards

Understand the key tradeoffs when you pay off credit card debt with a personal loan.

Using a personal loan to pay off credit cards is just one option you can use for do-it-yourself debt consolidation. It allows you to roll all your high interest rate credit card balances into one payment at a low rate. However, this only works as an effective debt solution if you meet three key criteria.

#1: Do you have a high enough credit score to qualify for a good rate?

This is the number one factor in determining how effective you can be with this debt solution. In order to qualify for the interest rate you need on the consolidation loan, you need a high credit score. Otherwise, you either won’t get approved for the loan or the rate will be too high to provide the benefit you need.

You want the lowest rate possible, so the higher your credit score the more effective this solution will be. At most, you want an interest rate that’s less than 10 percent. Anything in the 4-7% range is best. This also means that as the Federal Reserve raises their benchmark rate, consolidation loans become less effective. The ideal time to get into a consolidation loan is when rates are low. However, even as rates increase you should still be able to qualify at a good credit with a good credit score.

So, if you don’t have good credit, you may need to look elsewhere to find debt relief.

How much money would you save if you consolidate $10,000 in credit card debt at 15% APR with a 60-month personal loan at 5% APR?

On a minimum payment schedule, you’d pay $15,851 in total interest charges over 424 months; the monthly payments would start at around $200 per month and decrease over time. With the loan, you’d make fixed payments of $188.71 for 60 months, for total interest charges of just $1,322.74

#2: Can you afford the monthly payments with a term of 5 years or less?

The longer it takes to pay off your debt, the more months the lender has to apply interest charges. In other words, the longer the term of your loan, the higher the total cost for you. In general, debt elimination experts say a credit card debt repayment strategy should take five years or less.

However, a shorter term means higher monthly payments. The payments on a 5-year loan (60 payments) are higher than a 7-year loan (84 payments). Review your budget carefully to see if you can afford the payments with a term of less than five years.

Any more than that and you increase your total cost too much – it’s just not worth your effort to consolidate. What’s more, a repayment plan that takes longer than five years will be exhausting. Trying to avoid using your credit cards for that long while you eliminate the debt will be tough. And if you go back to charging before you pay the loan off, you can wind up in a worse situation. Which leads us to…

#3: Do you have the discipline to avoid using your cards after you consolidate?

One of the most common pitfalls with debt consolidation is that you start spending again before you eliminate your debt. When your credit card balances are high, it often keeps you from making new charges. You don’t want to add to your debt.

However, when you use a personal loan to consolidate credit cards, it gives you a false impression of financial stability. Your cards all have zero balances, so it can be tempting to start making charges again. Meanwhile, you still have the loan to pay off. While you may be able to afford the loan payments without your credit card bills, having both could be problematic.

This is the number one reason that people end up re-consolidating. They start charging again too early and their bills pile up to go beyond what they can afford to pay. You have to avoid this to use a personal consolidation loan effectively.

It’s important to note that one relief option – a debt management program – prevents this situation. Once you enroll, your creditors freeze your accounts and you can’t apply for new accounts until you finish the program. This helps you walk the path to eliminate your debt, even if it’s tough to give up your cards at first.

So, without this safeguard, it’s up to you to give up card usage until you have control of your debt.

Paying off credit card debt with a personal loan vs. a home equity loan

A personal loan is not the only lending option available for credit card debt relief. People may tell you to just use a home equity loan. But in most cases, those people are wrong. Here’s why…

A home equity loan increases your risk

A home equity loan is a secured loan. You use your home as collateral to get the funds you need. Basically, you cash out equity in your home that you can use for whatever you need. In this case, you cash out equity to pay off credit cards.

The problem with that is that you effectively convert unsecured debt into secured debt. Credit cards are usually unsecured. That means there’s no collateral in place to protect the lender in case of default. As much as debt collectors may threaten, they can’t take your property without a court order. They have to sue you in civil court to get their money back.

On the other hand, if you fall behind on your home equity loan payments, the lender will start a foreclosure action. If you don’t catch up, you can lose your home. The increased risk of this is usually not worth it just to pay off your credit cards. Even if you can afford the payments now, what happens if you lose your job?

This makes an unsecured personal loan a much better option. Unsecured debt stays unsecured and you home is never at risk.

Fact:Prior to the crash and just following it from 1999-2010, 26% of HELOCs (home equity lines of credit) were used to pay off credit cards

Should you take out a loan to pay off credit card debt?


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Brace yourself for an intimidating statistic

As of November 2017, according to the Federal Reserve credit card debt in the U.S. totaled more than $1.02 trillion.

If you’re one of these Americans with credit card debt, you may be making payments with high interest rates. But instead of dealing with sky-high interest rates, what if you could pay off your debt with a much lower interest rate?

This has to be a fantasy, you might say. But you may be able to do this by using a personal loan to pay off your credit card debt.

Personal loans give borrowers access to funds to use at their discretion and are typically unsecured, meaning they don’t require you to put down collateral to obtain the loan. This differs from auto loans, where you typically provide collateral — for example, your home or vehicle — that your lender can repossess if you don’t make your payments.

Find a personal loan that fits your needs See Loans

While personal loans may have higher interest rates than secured loans, they often offer lower interest rates than credit cards — some as low as 6 percent. However, you typically will only qualify for rates this low if you have excellent credit. In comparison, as of January 2018 the average credit card interest rate was higher than 16 percent.

A personal loan may be an enticing option if you have a lot of credit card debt, as it could allow you to pay off your high-interest credit card debt and then pay off the personal loan at a lower rate. Typically, as most lenders have a $1,000–$5,000 loan minimum, personal loans are only a viable option if you have several thousand dollars of debt.

Using a personal loan to pay off credit card debt could help you save money on interest and potentially get out of debt faster.

Is a personal loan the right option?

Taking out a personal loan to pay off your credit card may make financial sense in the short term. But a personal loan may not be a viable long-term solution unless you address the root cause of your debt.

Is your debt the result of an overspending issue or a lack-of-income issue? Whatever it may be, consider identifying and treating the cause of debt by making lifestyle and financial changes before taking out another loan.

Beverly Harzog, credit card expert and author of “The Debt Escape Plan,” offers another alternative to personal loans.

“If you have excellent credit scores, you may be better off getting a balance transfer credit card that offers a 0 percent introductory APR. This way, you can pay off the debt without paying interest.”

Of course, this is only true if you pay off your balance before the introductory APR period expires.

Interested in a balance transfer card? See Cards

If your credit scores aren’t high enough to qualify for a 0 percent introductory APR, a personal loan may be a good option. But keep in mind that you still have to meet the lender’s qualifications.

“Your goal is to get an interest rate lower than the one you’re currently paying on your credit cards,” Harzog says.

What are some potential issues with personal loans?

Shannon McLay, founder of financial services company The Financial Gym says, “It’s important to note that your interest rate with a personal loan may be lower than your credit card rates. However, you’re locked into a set monthly payment for a specific period of time, and this monthly payment may be higher than the minimum payments on your credit cards.”

So you may save money on interest, but your overall payments could be higher and present a cash flow issue. And according to McLay, if you miss payments on your personal loan, it will most likely negatively affect your credit scores.

Harzog also advises that borrowers “read the fine print carefully and look for fees, such as loan-origination fees and prepayment penalties.”

Loan-origination fees are charged by the lender for processing your new loan application and are typically a small percentage (6 percent or less, generally) of the total loan. They may be included in the loan amount though, which means you’d be paying interest on the fee as well. Also, watch out for prepayment penalties, which are additional fees that lenders may charge for paying off your loan early.

Taking out a personal loan to pay off credit card debt is an unconventional alternative that could save you money over time. If you’ve treated the root cause of your debt and have stable cash flow, a personal loan might be an attractive option.

However, it’s important to read the terms and conditions and ask a lot of questions. And if you decide to take out a personal loan, try to work with a reputable lender.

“It’s a good idea to check with a local credit union or your own community bank and see if you can get a personal loan that way. There are also loan comparison sites that can help you find the best rates. When you choose a lender, check the Better Business Bureau to see if there have been any complaints,” Harzog says.

In short, a personal loan can be a viable option to pay off credit card debt, but it’s important to do your research and to ensure it makes financial sense for you in the long run.


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The first step to financial wellness is taking control of your credit card debt. The Payoff Loan gives you the power to reduce multiple high-interest payments into one low-rate monthly payment.

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There are no application fees or commitments, and it does not impact your credit score.

Select the offer that works best for you and finish your application. See our rates and terms.

Review your terms, verify your information and eSign your loan documents. Find out what you need to get approved.

Your funds to pay off your credit card balances will be electronically deposited into your account.

How the Payoff Loan Compares to Credit Cards

Lower rates than most credit cards and customizable loan terms.

A single, fixed, and affordable monthly payment to simplify your life.

Paying off your credit cards can help increase your credit score by 40+ points. *

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All it takes is a few minutes to check your rate online.

Our loans are specifically designed to help you eliminate high-interest credit card debt.

Common Questions About The Payoff Loan

The Payoff Loan is a personal loan between $5,000 and $35,000 designed to eliminate or lower your credit card balances. The Payoff Loan is designed to allow you to take control of your finances and pay your credit cards off faster. This is made possible by consolidating your high-interest card balances into one monthly payment at a fixed rate and term.

Will checking my rate for the Payoff Loan affect my credit?

Checking your Payoff Loan rate will not hurt your credit. Right before you finalize your Payoff Loan, we run a hard inquiry, which can impact your credit. But good news, our Members see an average FICO Score increase of 40 points * .

What is the approval criteria for the Payoff Loan?

We're transparent about our approval criteria, and we encourage you to review the main approval factors here before you submit your application.

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Checking your rate won't hurt your credit score.

* Based on a study of Payoff Members between February 2017 and July 2017. Payoff Members, who paid off at least $5,000 in credit card balances, saw an average increase in their FICO ® Score of 40 points within four months of receiving the Payoff ® Loan. Individual results may vary.

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Payoff works with lending partners to ultimately originate loans. Information about our Lending Partners, including their address, financial institution type and charter, as well as links to their websites and privacy policies can be found on our Lending Partners page. Individual borrowers must be at least 18 years old and have valid social security and a valid checking account. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV. Our mailing address is: Payoff, Inc., 3200 Park Center Drive, STE 800, Costa Mesa, CA 92626.

Payoff offers fixed rates between 5.94% (8% APR) and 22.60% (25% APR) for loan amounts from $5,000 to $35,000. APR and minimum loan amount may vary in certain states, please see our Rates and Terms page for specific details.

Should You Use a Personal Loan to Pay Off Credit Cards?

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The average U.S. household has $6,662 in credit card debt and $37,172 in student loan debt. Talk about a scary combination.

But despite the lower average balance, credit cards might pose a greater threat to your financial well-being than student loans. Between sky-high interest rates and low minimum payments, there’s no end in sight for some borrowers.

So, if you’re neck-deep in credit card debt, find out how using a personal loan to pay off credit cards could be a good option for you.

How to use a personal loan to pay off credit cards

A personal loan to pay off credit cards is often called a credit card consolidation loan.

The idea is to get a credit card consolidation loan with a lower interest rate than what you’re paying on your credit card as well as a set repayment period. That way, you get a defined repayment plan.

For example, let’s say you have a $4,000 balance on your credit card with an 18.00% APR. If you qualified for a three-year personal loan with 12.00% APR, your monthly payment would be $133, and you’d pay $783 in total interest over the life of the loan.

If, however, you kept the debt on the credit card and paid $133 per month, it’d take you close to three and a half years to pay off the debt, and you’d pay $1,359 in interest during that time.

In other words, you’d save $576 by opting for a credit card consolidation loan.

Here’s a quick recap:

You also can use personal loans to pay off multiple credit cards by consolidating them all into one payment with one interest rate.

Advantages of using a personal loan to pay off credit cards

Personal loans will carry the biggest benefit if you’re currently paying high interest rates on multiple credit card accounts. Here’s why.

1. Potentially lower interest rate

Even a small change in your interest rate can make a big difference, especially if you have a lot of credit card debt. Keep in mind that there’s no guarantee your interest rate will be lower on a personal loan. It will depend on your creditworthiness.

Moving debt from multiple credit cards to one credit card consolidation loan can simplify your debt payoff.

For example, you won’t have to worry about various payment dates and amounts. Plus, making one payment instead of several could help keep you on track and organized with your bill payments.

With just one debt payment every month and one fixed interest rate, you might be able to pay off your loans on a shorter timeline.

That’s mostly because credit cards don’t have a set repayment period. In fact, if your balance is high enough, you could never get out of debt by paying just the minimum payment.

Shop smarter with personalized loan rates from multiple banks

Disadvantages of using a personal loan to pay off credit cards

Although there could be benefits to taking out a personal loan to pay off credit cards, it also carries inherent risks. Research your options and weigh these cons against the pros before taking out a credit card consolidation loan.

1. Potentially higher interest rates

Not all personal loan companies offer low interest rates. For example, Avant offers interest rates ranging from 9.95 % through 35.99 % APR.

That’s a massive range, and you typically need excellent credit to get the best rates. So, if your credit card interest rate stands at 18.00% APR and you qualify for a personal loan at a 25.00% APR, you’d be better off keeping the debt where it is.

2. You might not be able to afford it

If you have a large credit card balance, moving it to a credit card consolidation loan you have to pay off in just a few years might break your budget.

For example, if you moved $15,000 in debt to a three-year personal loan with a 12.00% APR, your monthly payment would be $498. If your budget is tight and you have no plans to make extra money to pay off your debt faster, it might be hard to manage.

Some personal loan companies charge an origination fee. This fee typically ranges from 1 percent to 6 percent of the loan amount. If you borrowed $15,000, for example, you’d pay between $150 and $900 upfront.

So, depending on the situation, using a personal loan to pay off credit cards could be more expensive, even if the loan has a lower interest rate.

Is a credit card consolidation loan the best move for you?

If you have a solid credit history and high-interest credit card debt, a credit card consolidation loan could help you save money on interest and repay your debt sooner.

Compare rates by personal loan companies like SoFi, Citizens Bank, and Upstart to see how they stack up.

And check out other top personal loan companies to see what they offer. Some even let you pre-qualify with a soft credit check, which won’t hurt your credit score.

If you can qualify for a low interest rate, a low or nonexistent origination fee, and a manageable monthly payment, the math could be in your favor. Use a credit card consolidation calculator to get the real numbers.

And if a credit card consolidation loan doesn’t seem like the way to go, another option you can consider is a balance transfer with a zero-interest credit card. These cards offer 0% APR promotions for a period, allowing you to pay down your debt with no interest at all.

Most cards, however, charge a balance transfer fee, which is usually between 3 percent and 5 percent. Also, if you don’t pay off the balance before the promotional period ends, you’re back to where you started, at least with regard to having a high interest rate.

At the end of the day, make sure you’re taking the time to consider all your credit card debt consolidation options. Even if you don’t qualify for the best deals out there, you’ll have the knowledge you need to create your next action plan for paying off your credit cards effectively.

Paula Pant contributed to this article.

5 Best Credit Card Loans to Pay Off Your Debt

By: Brittney Mayer • February 27, 2018

Opinions expressed here are ours alone, and are not provided, endorsed, or approved by any issuer. Site may be compensated through the issuer affiliate programs.

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Credit cards are a sort of amazing concept. Simply by filling out a few applications, you can go from having zero available credit to being able to sink yourself into thousands of dollars of debt — all in the practical blink of an eye.

When used responsibly, the easy availability of credit cards can be a great convenience, especially for those who use (and/or churn) credit cards for the rewards. But this can be as much a curse as a convenience when you end up on the wrong side of your balances.

When you have more debt than you can easily repay, spread across more cards than you can easily keep track of, one of the best solutions may be to consolidate your credit card debt with a personal loan. By obtaining a lower interest rate and putting your debt in one place, you can simplify your debt repayment process and get your finances back on track.

The Best Credit Card Loan Providers

To start the process of finding a loan to pay off your credit card debt, you need to have an exact goal in mind, as the type of loan you seek will depend largely on its purpose. In general, personal loans can be placed into one of two categories based on the length of the loan.

For instance, those loans that are designed to be maintained over a longer period of time, typically 12 to 72 months, are considered to be long-term loans. Long-term loans are also called installment loans, as they are repaid in regular, predetermined installments, often in the form of a monthly payment.

Loans that are intended to be short-term loans, often called cash advances, usually have terms ranging from 7 to 90 days. The majority of cash advances (and other short-term loans) are repaid in a single lump sum at the end of the loan period, consisting of the principal amount and any applicable financing or interest fees.

Consolidate Your Debt Long Term with a Personal Installment Loan

Cardholders in search of a loan to consolidate their debt should look for a long-term personal installment loan. The extended loan terms and installment repayment structure make them ideal for those who wish to make payments over time, as well as providing significantly lower interest rates than those offered for short-term loans.

Of course, as with everything else in consumer finance, the exact interest rate you receive will strongly depend on your personal credit situation, and you’ll see bad credit loans typically have higher rates. Online lending networks, such as those of our favorite providers, can be an easy way to compare multiple offers at once to ensure you get the best possible rate.

  • Loan amounts range from $2,000 to $35,000
  • Flexible credit requirements
  • Online lending network with partners in 50 states
  • Loan can be used for anything
  • Fast online approval
  • Funding in as few as 24 hours
  • See official site, terms and details.
  • Loan amounts range from $500 to $5,000
  • Experienced provider established in 1998
  • Compare quotes from a network of lenders
  • Flexible credit requirements
  • Easy online application & 5-minute approval
  • Funding in as few as 24 hours
  • See official site, terms and details.
  • Loan amounts range from $1,000 to $35,000
  • Flexible credit requirements
  • Loans can be used for anything
  • Five minute application
  • Funding possible in as few as 24 hours
  • Large lending network with multiple partners
  • See official site, terms and details.

As one of the major goals of consolidation is to decrease your monthly payments, consolidation is only truly effective if you can obtain a loan with a lower interest rate than you are currently being charged. You’ll need to compare your offered rates to your current interest rates to determine whether or not to accept a particular offer. This may be particularly important for those with poor credit, who tend to pay higher rates in general.

Avoid a Missed Payment with a Short-Term Cash Advance Loan

Unlike long-term installment loans, short-term loans are poorly suited for credit card consolidation due to the higher interest rates and typical lump-sum repayment structure. Furthermore, short-term loans have much lower caps on the size of the loan, typically maxing out at $2,500. That said, there may be some circumstances in which it is a preferable way to pay your credit card debt.

For instance, a short-term loan or cash advance may be an effective way of avoiding a missed credit card payment, thus preventing the negative credit score impacts of a delinquent account. As with long-term loans, the exact rate and fees you pay will vary by lender, so compare offers for the best deal. Start with our top-rated lending networks to find offers from multiple lenders at once.

  • Loan amounts range from $100 to $1,000
  • Short-term loans with flexible credit requirements
  • Compare quotes from a network of lenders
  • 5-minute approvals and funding as soon as 24 hours
  • Minimum monthly income of $1,000 required
  • Current employment with 90 days on the job required
  • See official site, terms and details.
  • Short-term loans up to $2,500
  • Online marketplace of lenders
  • Funds available in as few as 24 hours
  • Simple online form takes less than 5 minutes
  • Trusted by more than 2,000,000 customers
  • Not available in NY
  • See official site, terms and details.

The biggest thing to watch out for when it comes to short-term or cash advance loans is the fact that they generally must be repaid all at once. Many of those who cannot afford to repay the loan as agreed will extend the initial loan or take out a second short-term loan to pay off the first, initiating a dangerous cycle that often results in an insurmountable pile of fees and debt.

If you think you may be unable to repay a short-term loan in its entirety on the required date, you should avoid taking on the loan. You may be better off contacting your creditors directly to negotiate a later payment date or some type of payment plan. If you cannot afford your current monthly payments, consider a long-term loan to consolidate your debt and lower your interest rate.

Personal Loans vs. Credit Cards: When to Use a Loan Instead

While personal loans and credit cards have some similarities — both are unsecured lines of credit, for example — each has particular uses for which it is best suited. For instance, credit cards can be an excellent way to make large purchases without needing to handle cash, to make online purchases, and to earn cash back or travel rewards.

Where credit cards are less suitable is as a source of cash in an emergency or as financing for large purchases you need to repay over time. On the other hand, this is exactly where loans excel. Short-term loans can provide handy cash when you need it, and installment loans were, quite literally, made for financing major purchases with a long-term repayment structure.

So what makes credit cards so bad at these jobs? Two words: interest rates.

Credit cards are revolving credit lines intended for short-term financing of purchases and are designed to be paid off at the end of each statement cycle. Since the creditor doesn’t expect you to carry a balance for long, the interest rates charged by the average credit card are often 16%-plus for even those with excellent credit and can range beyond 30% for those with poor credit.

Additionally, credit card cash advance APRs are usually even higher than purchase APRs, making it particularly expensive to use your credit card as a source of cash. The amount of cash you can get from your card is also very limited, typically restricted to 10% of your card’s overall credit limit.

Personal installment loans, on the other hand, can be obtained for $35,000 or more, depending on your credit and income. They’re also specifically designed to be repaid over the course of a year, or more, meaning they have a certain amount of guaranteed interest (read: profit) built into the loan. For this reason, installment loans often have lower interest rates than credit cards or other short-term credit lines, with interest rates averaging around 10% for the most qualified applicants.

What to Expect from the Consolidation Process

Debt consolidation is the process of taking out a single, large loan to pay off several smaller debts, thus consolidating (combining) all of your outstanding debts into one debt. Ideally, the new loan will have a much lower interest rate than was charged by all of your previous credit lines, decreasing your overall monthly payment.

The first step for consolidating your credit card debt is to figure out which cards carry balances, the amount, and the current APR. This will enable you to see the size of the loan you will need, as well as what APR for which to aim. For example, if your credit card debt was distributed across four cards, A through D — as shown in the graphic — the ideal consolidation loan would be for $6,100, with an APR below 19%.

Next will be researching your loan options, including determining your potential interest rate. This part is easy, as most providers will offer personalized quotes using a soft credit pull, which won’t impact your credit.

Once you’ve found a provider and been approved for a loan, your money will be distributed to the account you specify on your application. Typical distribution times range from 24 hours up to a couple of weeks, depending on the size and nature of the loan. When the money clears your account, you can pay your credit card balances in the usual manner.

If your credit card bills come due during the process, such as while waiting for the funds to be distributed, be sure to pay at least the minimum payments before the due date. Late and missed payments that are reported to the credit bureaus can have big, negative impacts on your credit score.

Work Smarter — Not Harder — To Pay Off Your Debt

Credit cards can be a great convenience and valuable financial tool — when used responsibly and in moderation. Unfortunately, it’s all too easy for your credit card debt to grow out of control, with debt spread across multiple cards and balances reaching multiple digits.

As with credit cards themselves, using loans to pay off your credit card debt can be a valuable financial tool — when it’s done the smart way. Do your research, know the fees and interest rates you’ll be required to pay, and understand what to expect from the process before ever taking on new debt, even to pay off existing debt.

Editorial Note: Opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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