Guide to Using Personal Loan to Clear Credit Card Debt (2024)

FAQs

Is getting a personal loan good for credit card debt? ›

The Bottom Line. Using a personal loan to pay off credit card debt can have several benefits. Personal loans typically have lower interest rates than credit cards, which can help you save money on interest charges and pay off your debt more quickly.

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%.

It depends on your repayment capacity. Typically, outstanding credit card balance attracts much higher interest rates than personal loans. In such cases, it may be advisable to consider an Insta Personal Loan.

Using a personal loan to clear your credit card debt can be a wise financial move if you're struggling with high-interest credit card balances and want to regain control of your finances. It offers lower interest rates, structured repayments, and the potential to improve your credit score.

Using a personal loan to pay off debt helps you get rid of multiple payments and go down to one payment per month — and hopefully with a much lower APR. Consider using a debt repayment calculator to determine how much sooner you could pay off your debt with a lower interest rate.

If you qualify for a lower interest rate, debt consolidation can be a smart decision. However, if your credit score isn't high enough to access the most competitive rates, you may be stuck with a rate that's higher than on your current debts.

A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can be a big help when it comes to determining the loan repayment term that's right for you.

The good news is there are legal ways to reduce and even eliminate your credit card debt – including debt management plans, bankruptcy, and in some cases, debt settlement. Whichever approach you choose, know that there are also drawbacks, ranging from legal fees to credit score damage.

What is the fastest way to get out of credit card debt? ›

Filing for Chapter 7 bankruptcy could discharge (forgive) all of your credit card debt. However, bankruptcy should only be considered as a last resort option due to the lasting damage it will cause to your credit. Bankruptcy will remain on your credit for up to 10 years after the filing date.

If you're able to pay about 5% of the balance each month on a $30,000 credit card bill, it will take 169 months, or about 14 years, to pay off your balance. You'll also pay $17,271.80 in total interest charges over the 14-year time frame.

Personal loans typically have a lower interest rate than credit cards. If you're looking to take out a personal loan, then you'll need decide whether you want a loan with a variable or fixed interest rate. Find out what your repayments could look like with our personal loan repayment calculator.

Whether it's for debt consolidation, emergency expenses or other uses, a personal loan has the potential to help (or hurt) your credit scores. If you manage it responsibly and keep up with all your other debt payments, a personal loan can be a useful tool in your credit arsenal.

According to Experian, the average credit card debt in the U.S. was $5,910 in 2022. For people applying for a mortgage loan, credit card debt can pose a problem. If your credit score doesn't qualify you for the lowest possible rate, you'll owe thousands of extra dollars in interest over the life of the loan.