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How to Use a Personal Loan to Consolidate Credit Card Debt

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If you’re saddled with a lot of credit card debt, you may feel like all (monetary) hope is lost — particularly if you’ve got balances on multiple pieces of plastic. But there are ways to address that debt — and streamline your payments. One oft-forgotten option: a debt consolidation loan, also simply referred to as a personal loan.

How Can a Personal Loan Help My Credit Card Debt?

Well, for starters, getting a personal loan from your local bank, credit union, or reputable online lender can help you consolidate credit card debt. You use the loan to pay off multiple balances and then pay the personal loan back in one set monthly payment for a certain period of time at a certain interest rate. That precludes you from having to keep track of multiple payments (and balances) each month.

However, for this strategy to work truly as intended, you’ll most likely need good or excellent credit. That’s because the rates on personal loans are determined largely by your credit score. Having great credit gets you the lowest interest rate on these loans. If you have poor credit, you may not be able to qualify for a loan. You can check two of your credit scores for free using the’s free credit report snapshot.

Loan officers will look at your credit score, plus your income for the past couple of years as well as your debt-to-income ratio. And if any of these are deemed insufficient you may have a tough time qualifying for a loan with an affordable interest rate.

Should I Get a Personal Loan to Pay Off Credit Card Debt?

That depends. Begin by asking about credit scores needed to qualify for a personal loan from your bank or credit union. If you do happen to meet the other credit criteria for a personal loan, your previous accounts with a bank or credit union may qualify you for discounts on the interest rate. Note: Online lenders offer personal loans as well. But you will want to shop carefully. The Federal Trade Commission warns that some “lenders” are nothing more than advance-fee scam artists.

Beyond qualification requirements, electing to take out a personal loan comes down to how you feel about their advantages and drawbacks. Let’s break it down.

What Are the Advantages of a Personal Loan?

Once approved for a personal loan, you will be able to consolidate higher-interest credit card debt. You can pay off your credit cards using the money from the personal loan. Personal loans charge simple interest and it’s much easier to make one loan payment per month instead of four or five or six credit card payments.

Personal loans typically have loan terms of three to five years so by consolidating your credit card debt into a personal loan, you’ll have a definite plan for paying off your old card debt. Pay your loan as agreed and by the end of the term all your consolidated credit card debt will be paid in full.

What Are the Disadvantages of a Personal Loan?

As we intimated earlier, personal loans are installment loans. When you take one out, you’re locking yourself into a set monthly payment for a certain amount of time. A credit card, conversely, is a revolving line of credit: You get approved for a set credit line and you can use it to make purchases, but only have to make a minimum payment (usually 1% to 3% of your balance) come the end of the month. That may sound like a recipe for disaster — and for some folks, it is. But it does provide a certain flexibility that personal loans don’t, should you run into further financial woes down the line. Plus, depending on how much debt you’re carrying and what interest rates you can qualify for, it may be more advantageous to consolidate and pay off your debt with a balance-transfer credit card. The best balance transfer credit cards offer a 0% introductory annual percentage rate (APR) that let you avoid paying interest on any credit card debts you transfer for a certain period of time, usually 12 to 15 months. (Note: You typically pay a fee, usually 2% to 5% of the balance upon its transfer.)  

Ultimately, the choice is yours, but, if you do opt for a personal loan, make sure its payment amount is something that fits easily into your budget. Failing to pay a personal loan as agreed will hurt your credit. So stay on top of your loan payments and build up a solid payment history instead.

This article has been updated. It originally ran on February 20, 2014.

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