Should I get a personal loan to pay off my credit card?

Credit card debt can be expensive and hard to control so looking for ways to pay it off faster and more cheaply makes sense.

One option is to take out a personal loan – often called a debt consolidation loan - and use it to pay off your credit card debt.

But there are pros and cons to using a loan to pay off your credit card. And there are alternatives you might want to consider too.

How do I find a personal loan that’s right for me?

It’s free to compare personal loans with Experian and it doesn’t affect your credit score. You’ll get your eligibility rating for each loan so you can see your chance of getting approved before you apply.

Step 1: Tell us what type of loan you’re looking for, how much you want to borrow and for how long.

Step 2: Enter some basic personal details to confirm your identity.

Step 3: Browse your loan offers from across 40 leading brands.

Is personal loan debt better than credit card debt?

It depends. There are some key differences between personal loans and credit cards.

Personal loans let you borrow a specific amount of money for an agreed period (typically £1,000 to £25,000 over 1 to 10 years). These loans have:

• Fixed interest rates. Your interest rate is set when you take out the loan and won’t change.
• Fixed repayment terms. You choose your term when you take out the loan. The longer the term, the lower your monthly payments but the more interest you’ll pay overall.
• Set monthly repayments. These make it easier to budget. But you can’t make lower payments if you’re struggling.
• Fees. Some lenders charge fees if you repay the loan in full early. You may also have to set up the loan.

Credit cards are a type of revolving debt; you get a credit limit which you can spend up to, repay and borrow up to again. Credit cards have:

• Variable interest rates. The rate you pay on your credit card can rise or fall.
• Flexible repayments. You can choose to repay your card in full, pay just the minimum repayment or anything in between. But if you only ever make the minimum payment, it could take many years to clear your debt.
• No clear payoff date. There is no set date when you’ll be debt-free. It depends on how much you repay each month and if you keep spending on the card.
• Fees. Some cards charge annual or balance transfer fees. And there are charges
  for things like late monthly repayments.

Credit cards and personal loans can both affect your credit score; making payments on time can improve your score but missing payments can damage it.

Something else to be aware of with credit cards is that if you use a high proportion of your credit limit it can hurt your score. Taking out a loan to pay off your credit card debt could help with this. Your score will take a small dent when you take out the loan but should recover quickly.

Should you pay off credit card debt with a personal loan?

Applying for a loan to pay off high-interest credit card debt may help you repay your debt faster and more cheaply, but not always. It’s important to understand the pros and cons of doing this and how this strategy compares to other options.

Pros

The three main benefits of using a personal loan to pay off credit card debt are:

• Certainty. Your monthly repayments are a fixed amount. If you pay them each month, you’re guaranteed to repay the loan by the end of the term.
• Lower interest rates. Personal loan rates tend to be lower than credit card rates. But if you stretch your loan over many years, you may pay more interest with the loan.
• Convenience. If you consolidate several credit card balances into one loan, you’ll have fewer monthly payments to keep track of.

Cons

The three main drawbacks of getting a personal loan to consolidate credit card debt are:

• No guaranteed loan amount or interest rate. You might not qualify for a large enough loan to pay off your credit cards completely. Or you might only qualify for a loan that has a higher interest rate than your credit cards.
• You could end up in more debt. If your credit card debt has built up from overspending, a personal loan might not be the answer. You might turn to your credit cards after paying them off and wind up in deeper debt.
• Your monthly payment may be unaffordable. Even though the interest rate may be lower, the monthly payment on a loan could be more than you’ve been repaying on your credit card. Make sure you’re confident you can repay the monthly repayment as missed payments will damage your credit score.

How do I consolidate my debts?

To do this you need to take out a loan and use this to pay off your debts. You’ll still owe the same amount but now all your debt is in one place, making it easier to manage.

You can use an unsecured personal loan for this. Some personal loans have restrictions on what you can use them for (for example, home improvements or to buy a car) but others are specifically for debt consolidation.

If you’ve got bad credit, you may only be offered a secured loan which could lead to your car or home being repossessed if you miss repayments.

What can I use a debt consolidation loan for?

You can use a debt consolidation loan to pay off different types of debt including credit card and store card debt, personal loans, overdrafts and payday loans.

When is a debt consolidation loan a good idea?

When they work well, debt consolidation loans can save you money, help you pay off your debt faster and streamline your payments. But they’re not suitable for all.

A debt consolidation loan could be a good idea if:

1. You have a good credit score and are likely to qualify for a low-interest loan.
2. You can afford the new monthly payment comfortably.
3. Your existing debt is high-interest debt.
4. You won’t end up paying more interest overall.
5. You’re committed to paying off your debt and not taking on any new debt.

How to pay off credit card debt without a personal loan

If you don’t think a personal loan for credit card debt is right for you, there are other options:

1. Try a debt repayment strategy. Keep your credit cards but focus on paying one card off at a time. Two popular strategies are the snowball approach—paying off the card with the lowest balance first—and the avalanche approach—paying off the card with the highest interest rate first.
2. Consider a balance transfer card. You may be able to move expensive credit card debt to a 0% balance transfer card and benefit from not paying any interest for a set period. You may have to pay a fee to do so.
3. Remortgage. If you have equity in your home, you could remortgage and use the money you free up to pay off your debts. This is a drastic option as it turns your debt into secured debt meaning you could lose your home if you don’t make your monthly repayments.
4. Get debt advice. You can get help for credit card debt by speaking to a debt adviser from one of the free debt advice agencies. They’ll help you look at your options and get back on track.

If you’re not sure which option is right for you, start by taking some steps that won’t impact your credit score such as getting pre-approved for a personal loan or speaking to a debt adviser.

What are three ways to pay off credit card debt fast?

1. Work out how much you can afford to pay off each month. The more you pay, the faster your debt will clear.
2. Switch your debt to a 0% balance transfer card so all your repayments go towards paying down your debt (rather than interest).
3. If possible, stop using your credit card to borrow so your debt doesn’t keep growing.

How to apply for a loan

If you think a personal loan might make sense, you can use tools from Experian to get debt consolidation loan offers from multiple providers. Checking your offers results in a soft credit inquiry which won't impact your credit score, and you can quickly compare the results to see which provider offers you the most favourable loan.