Paying Down Debt: Can You Use a Personal Loan To Pay Down Credit Card Debt?

Jason SteeleUpdated March 13, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Paying down credit card debt can be one of the biggest personal finance challenges to face. A monthly credit card statement details the new interest charges incurred, the monthly minimum payment, and the payment due date. If you have outstanding balances on multiple credit cards, you’ll receive statements for each one — and that can take a toll on your morale. Perhaps you’ve considered applying for a personal loan to pay down credit card debt, and are wondering if it’s a strategy that will work for you. Maybe you’re wondering what debt financing is? Let’s take a look at what personal loans are and how you may be able to use a personal loan to pay down debt.

What Is a Personal Loan?

A personal loan is an installment loan. Typically, these are loans that are paid back in monthly installments over a period of between two and seven years. Personal loans can be used for many different purposes, including home repair, car repair, or to pay medical bills.

Can a Personal Loan Be Used To Pay Down a Credit Card?

Yes, it’s certainly possible to use a personal loan to pay down credit card debt. Once you’re approved for a personal loan and you receive the funds from it, you can issue payments to one or more of your credit card accounts. Recommended: Getting Out of Gambling Debt Using Loans

The Pros and Cons of Using a Personal Loan To Pay Down Credit Card Debt

When you’re wondering if you should get a personal loan to pay down debt, or if it’s worth it to get a personal loan to pay down debt, it’s important to consider all of the benefits and drawbacks of this strategy.

Benefits of a Personal Loan To Pay Down Credit Card Debt

There are many good reasons to use a personal loan to pay down your credit card debt. Here are five of them:

A personal loan can allow you to pay down all of your credit card debts. When you take a personal loan, you’ll likely choose to borrow an amount that’s enough to pay all of your credit card balances in full. This is what debt consolidation is.
Your credit score could improve. When you pay down multiple accounts, you’ll have fewer outstanding balances, which could have a positive effect on your credit score. A personal loan will also add to your credit mix, which plays a factor in your credit score calculation.
You might save money on interest charges. Personal loans are likely to offer lower interest rates than credit cards, which will allow you to save money on interest.
Your monthly payments may be lower. Either by having a lower interest rate or by having a longer repayment period, it’s possible to have a lower monthly payment when you use a personal loan to pay down your credit card balances.
You’ll only have to make one monthly payment. One of the most attractive things about using a personal loan to pay down your credit card debt is that you can consolidate your balances into one loan. And when you have just a single payment to make each month, your finances may be easier to manage.

Downsides of Using Personal Loans To Pay for Credit Card Debt

There are several reasons why personal loans can be a bad option in some instances. Here are five of them to consider:

You’ll be taking out another loan. The reason that you may need to use a personal loan to pay down your credit cards is that you’ve been unable to control your level of debt. Taking out a personal loan just means that you’ll owe money to another type of loan.
You may be tempted to continue to incur more credit card debt. Once you’ve paid off your existing credit card debt, you will have freed up your lines of credit. And if you’ve gotten used to using your credit cards to pay for your regular monthly expenses, then you might continue to use them and incur more debt.
Personal loans can have fees. You may have to pay origination fees to take out a personal loan. And you can also incur late payment fees and insufficient funds fees if you don’t manage your personal loan responsibly.
A personal loan may not have a lower interest rate. If you have excellent credit, then a personal loan may offer you a lower interest rate than your credit cards. But if you’re using a high percentage of your total available credit and you’ve had problems making your monthly credit card payments, then you may not be able to qualify for a personal loan with a lower interest rate than the credit card accounts you currently have.

There may be better alternatives to a personal loan. A personal loan is just one of many types of credit card debt consolidation loans. Others include home equity loans, home equity lines of credit, and cash-out refinancing of your car or house. You can also open a balance transfer credit card with a 0% APR introductory financing offer.

Advantages of using a personal loan to pay down credit card debt	Drawbacks of using a personal loan to pay down credit card debt
A personal loan can allow you to pay down all of your credit card debts.	You’re trading one debt for another.
You can save money on interest charges.	You may be tempted to continue to incur more credit card debt.
Your credit score could improve.	Personal loans can have fees.
You can have lower monthly payments.	A personal loan may not have a lower interest rate.
You’ll only have to make one monthly payment.	There may be better alternatives to personal loan.

Recommended: 7 Payday Loan Alternatives

Alternatives to Personal Loans for Paying Down Credit Card Debt

Rather than exploring personal loans, there may be other options for someone who is looking for ways to pay down personal debt. Depending on how good your credit is, if you have assets to borrow against, or have family or friends willing to lend to you, among other factors, there may be other avenues to regain your financial footing.

Type of loan	Main advantages	Main drawbacks
Balance Transfer Credit Cards	Easy to apply for.	Applicants typically need good or excellent credit to qualify.
	Multiple offers available.	You won’t know your credit limit until after you’ve been approved.
	Interest-free financing for a limited time.	Balance transfer fee of 3% or 5% is common.
Credit Card Consolidation Loans	Payments can be made directly to lenders.	There can be origination and other fees.
	Fixed rates and payment amounts.	May not be available to applicants with bad credit.
	Lower APRs may be available.	Longer application process compared to balance transfer credit cards.
Home Equity Loan	Lower interest rates than personal loans.	You must own property with significant equity.
	Loans can have a long repayment period, keeping payments low.	There can be origination and closing fees.
	Less stringent credit requirements.	You risk losing your home if you default.
HELOC	Flexible borrowing and repayment terms.	Must have home equity.
	Low interest rates compared to unsecured personal loans.	Significant origination and closing fees.
	Lower credit requirements.	Interest-only payment options can make it easy to avoid paying down debt.
401(k) Loan	No credit check.	You’re putting your retirement savings at risk.
	No effect on your credit.	High fees if you fail to repay the loan.
	Low interest rates.	If you change jobs, you may have to pay back the loan more quickly.
Debt Management Plans	You make one payment each month.	You will be asked to stop using credit cards.
	Your interest rates and fees can be reduced.	The terms of the plan can be derailed if you miss a single payment.
	You’re assisted by an experienced counselor.	There will be enrollment fees and monthly fees.
Loan from Friend or Family	Potentially no fees or interest charges.	You can risk your relationship with family and friends.
	No credit checks.	You can be putting others at financial risk if you fail to repay the loan.
	No formal application process.	It can be difficult to ask for help.
Cash-Out Auto Refinancing	Potentially low interest rate.	Since vehicles tend to depreciate, you may not have much equity.
	Fewer fees than other secured loans such as those against your home equity.	You risk losing your vehicle if you can’t pay back the loan.

Tips on Getting a Personal Loan To Pay Down Credit Card Debt

Once you’ve decided that you’d like to get a personal loan to pay down your credit card debt, there are three steps that you need to take:

Looking for a Loan

The first step is to shop around for a loan. The most important factors to consider will be the loan’s annual percentage rate (APR) and any fees or penalties that may be charged. The loan term, which will be a major factor in the size of your monthly payments, is also an important factor in determining the amount of the monthly payment.

Getting Your Documents Together

Once you’ve decided which loan to apply for, you’ll want to compile all the necessary documents. These can include photo identification, proof of address (lease agreement and utility bill are commonly used), and income verification. You may have to provide your Social Security number so the lender can run a credit check.

Applying for Loans

The last step is actually applying for the loan. At this point, you’ll provide all the information you’ve accumulated, supply the documents to the lender, and sign the loan application. You’ll also need to supply the information for the bank account where the funds will be deposited. You may also be able to have the money disbursed directly to credit card accounts that you have outstanding balances with. Recommended: Personal Loans vs Credit Cards: A Complete Comparison

Compare Personal Loan Rates With Lantern by SoFi

Are you wondering if it is worth it to get a personal loan to pay down debt? SoFi by Lantern can help you explore personal loans and compare personal loan rates. We can also help you compare credit card debt consolidation loans.

The Takeaway

The struggle to pay down credit card debt can be a difficult one for some people. If you’re facing this particular challenge and if you should get a personal loan to pay down debt, you may want to consider Lantern by Sofi. In just a few minutes’ time, one online application will result in personal loan offers from multiple lenders in our network. Find your rate at Lantern by SoFi

SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS # 1121636, a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

Photo credit: iStock/akinbostanci

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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