Is Taking Out a Personal Loan to Pay Off Credit Card Debt Smart?

Consolidating multiple cards into one loan could make your debt more manageable.
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If you and your partner are carrying balances on your credit cards, chances are you'll be paying a bunch of interest to your card issuers each month. You may be able to reduce this by rejiggering your debts. The best way to do this will depend on how much you owe and your personal circumstances. For some, taking out a personal loan will be the answer, while others may be better off doing things differently.

Interest Rate

You could save money by taking out a personal loan if your credit card issuers charge you a high level of interest on the debt you've racked up. If you're just making the minimum payment on your cards each month, there'll be a good chance that taking out a personal loan that charges a lower rate of interest than your cards will save you a fair amount of cash. You can use credit card repayment calculators such as those provided by, the Federal Reserve and MSN to help you figure out exactly what you could save. Obviously, taking out an expensive payday loan that charges more interest than your credit cards won't be a good idea.

Level of Credit

If you have a lot of credit card debt, you may not be able to get a personal loan that will cover it all. Because personal loans typically are unsecured, lenders only dish out large personal loans to customers who have top-notch credit. If you have a good enough credit score to get a large personal loan, you'll probably be able to get cheaper forms of finance. A secured loan, a cash-out refinance that allows you to release equity from your home or a home equity loan or line of credit will typically work out cheaper than an unsecured personal loan. If you do decide to go for a personal loan, avoid payday lenders at all costs. Stick to traditional banks or credit unions.

Balance Transfer

Taking out a new 0 percent balance transfer offer could be a better option than going for a personal loan if you have a good credit record and are pretty sure you'll be able to clear what you owe on your cards in a short period of time. You'll have to pay a fee to move a balance but won't pay any interest if you can get rid of your debt during the introductory period. Figure out how much you'll have to pay each month to get your debt paid off before your offer period ends, and set up a direct debit to pay this amount so you know you'll be rid of your debt in time.

Fixed Payments

You know where you are with a personal loan. The amount of interest you'll be charged will typically remain constant as long as you've taken out a fixed-rate product and stick to your payments. You'll also always know how much you'll have to pay each month. This is in contrast to most credit cards that offer variable rates and can change the amount they ask you to pay. Although taking out a fixed-rate personal loan could cost you a lot more than a 0 percent balance transfer card, it could suit you better if you don't have the discipline to pay down a balance in a short space of time.


Resist the urge to close down your credit card accounts if you do decide to pay them off with a personal loan. Doing so could pull down your credit score by increasing your debt-to-credit ratio and reducing the age of your oldest open credit line. Cut up your cards and forget about them if you're worried about using them to take out more debt. If you have any savings that aren't earning you any interest, consider using them to pay off your card debt. If any money you've got tucked away is earning you less money than your cards are costing you each month, doing so will be an absolute no-brainer.

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