Is paying off card debt with a personal loan a good idea?

Credit score, amount of debt might determine if a loan is the right option for you


Dear Credit Smart,
Is it a good idea to take out a personal loan to pay off credit card debt and lower my monthly payments?  – Bruce


Dear Bruce,
This is an option that can work very well for some consumers. Certainly the idea of lower monthly payments is appealing. However, you will need to do your homework to be sure you will save money when all is said and done.

What this means is that you need to determine the amount of money you will pay in interest over the life of your loan and compare that to the interest rates on your current debt. If you have high-interest credit cards, a loan with a rate lower than your cards’ would almost certainly save you money overall. If you need help figuring that out, you can use the calculators available on

If you are looking at a favorable loan rate, you must also be sure you can qualify for both the rate and the amount required to pay off your debt. This is where things can get tricky for some people.

  • In order to qualify for the best rates available, you generally must have a very good to excellent credit score. In addition, much will depend on the amount of debt you have.
  • While you may qualify for the rate, you may not be able to borrow the amount you need to completely pay off your debt. This also will be determined in large part by your credit score.

If you are able to borrow the amount you need at a rate that saves you money, that’s great. But try to remember how you got to this point, and see if you can structure your spending habits to avoid finding yourself right back where you started in a short time.

Because you will be borrowing from a third source to pay off your debt, chances are you won’t have to close your credit card accounts. In fact, from a purely credit score view, you should not close the accounts. Having available credit is very good for your credit score. But it can be very bad for consumers who are tempted by all they could buy with that available credit.

You may need to use your cards to keep them open, and that’s OK. Here's what you can do to avoid racking up credit debt again:

  • Use your cards for regular planned monthly expenses, such as gas and groceries, and set aside the funds for those expenses to pay your credit card bills in full each month.
  • Create a personal spending plan that avoids the use of credit when possible. If you find yourself in a situation that will require you to use credit, be thoughtful about how you will pay it back.
  • If possible, try to pay outstanding balances in three months or less. This will save you money spent on interest as well as help you to stay out of long-term debt.

Remember to always use your credit smarts!

See related: Compare personal loans, Is a personal loan for living expenses ever a good idea?

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Updated: 01-19-2018