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Should you use a personal loan to pay off credit card debt?

Debt relief programs may be more efficient than personal loans for paying off high-interest credit card debt.  Getty Images

Credit card debt can be stressful, especially in today's economic environment. After all, prices continue to rise and high interest rates are adding to borrowing costs. So, if you have credit card balances that you can't pay off quickly, you may be wondering whether it makes sense to take out a personal loan to pay them off. 

As of November 2023, the average interest rate on a personal loan with a 24-month term was 12.35%, according to data from the Federal Reserve. So, by using a personal loan to pay off your credit card debt, there could be significant savings, as the average credit card rate is currently 21.47%

But while a personal loan may help you get rid of high-interest credit card debt, there may be more effective options for borrowers who are struggling to pay off their credit cards. 

Learn more about your credit card debt relief options now

Should you use a personal loan to pay off credit card debt?

Given the lower average rates, a personal loan can be a smart way to pay off your credit card debt if you're easily able to afford the payments and have a strong credit score and borrowing profile. However, the lowest rates are typically reserved for those with strong credit scores, so if your credit score is low, you could end up with a much higher rate than the average on a personal loan. 

And, some personal loans also come with extra fees that can add to the cost of borrowing. Plus, if you're already struggling to make your card payments, freeing up more available credit could lead to accruing even more credit card debt if you continue to use your cards. And, if your credit score or borrower profile is less than ideal, you may not be approved for a personal loan at all.

That's why in some cases it could make more sense to consider debt relief options like debt management or debt forgiveness instead. Debt management programs, which are offered by debt relief companies, typically work with your lenders to reduce your interest rates and improve your payment terms. Debt forgiveness programs, on the other hand, work to negotiate a lower payment that's a percentage of your principal balance. 

Both debt relief options can result in paying less overall on your credit card debt, and both can be more efficient than simply making monthly minimum payments on your cards, especially if you're unable to pay off what you owe with a low-rate personal loan. And, depending on your financial hardships and the amount you owe, these programs may help you avoid bankruptcy

Get in touch with a credit card debt relief expert today

You should consider debt management over a personal loan if...

If you're only able to make your monthly minimum payments, a credit card debt management program may be a viable solution. The process starts with a conversation about your finances and your debts. The debt consolidation expert then works with your lenders to try and reduce your interest rates. Once the rate negotiations are complete, the debt relief company typically creates a payment plan that fits your budget and is designed to get you out of debt in a reasonable amount of time. 

It can also make sense to consider debt management over a personal loan if you don't qualify for the best rate on a personal loan. After all, you don't have to have impeccable credit to qualify for lower interest rates with a debt management program, but you will typically need a good or excellent credit score to be offered a low rate on a personal loan. 

You should consider debt forgiveness over a personal loan if...

If you're struggling to make your minimum payments or can't get approved for a personal loan at a low rate, you may want to consider reaching out to a debt forgiveness company instead. 

When you enroll in a debt forgiveness program, you are typically advised to stop making the monthly payments to your lenders and will send monthly payments to your debt relief provider instead. That company will hold your money in a special-purpose savings account until you've saved enough to start settling your debts. 

Once enough money has accrued in the account, the debt forgiveness company will start negotiating to lower your principal balances with your lenders. If those negotiations are successful, your lenders will accept a settlement that's less than what you owe, forgiving the remainder of your balance. 

However, debt settlement isn't a perfect solution. These programs can have a negative impact on your credit scores and may come with tax implications. So, it's important to weigh the pros and cons before you sign up

The bottom line

Using a personal loan to pay off your credit card debt can make sense in certain circumstances, like when you qualify for a low personal loan rate and are confident that you can afford to make the monthly payments on your loan. But if you're unable to access a low rate on a personal loan or you don't qualify to borrow with a personal loan, considering your debt relief options could make more sense. 

This story has been updated to clarify the difference between debt management and debt consolidation programs.

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