Personal Loan to Pay Off Credit Card Debt

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A personal loan to pay off credit card debt is a way to streamline payments into one manageable monthly bill. While taking one on won’t ultimately change your behavior, it can be a good way to get a better interest rate and help you manage your finances.
 

 

We’ll Cover

  • What is it?
  • Do I have to have a great score to qualify?
  • Benefits
  • Drawbacks
  • How to get a better loan
  • Before you apply
  • How to apply
  • FAQ
  • Summary

Can I use a Personal Loan to Pay Off Credit Card Debt?

These types are also known as consolidation loans and are used for the purpose of combining smaller debts, in this case, credit cards, into one fixed monthly payment. Consumer retail cards, for example, have interest rates ranging from high to exorbitant depending on the company.

The idea is that a single personal loan with an interest rate of 13% is more manageable and reasonable in the long run than paying the minimums on a dozen or more store cards at 30% each.

These products can be furnished by banks, credit unions, or through an alternative online lender.

Do I Have to Have a Great Credit Score to Qualify?

There are products for almost anyone, even if your credit is less than ideal. Of course, the better your score, the better your APR and terms will be. That being said, a qualified cosigner will improve your situation so you can get a better deal, even if your score is low.

For more information on personal loans and what you can do if you have bad credit, click here.

Credit Class Score Average APR
Excellent 720-850 4.5%-21.7%
Good 670-719 6.8%-28.3%
Fair 580-669 7.00%-30.50%
Poor 580 or lower 15.05%-36.00%

Benefits of Consolidation Products

The main reason to consider a personal loan is when you’re looking for an improved interest rate. While some lenders will aggressively promote them for the simple fact that they save time and hassle, you’ll definitely want to make sure that your new APR is worthwhile compared to your combined credit card debt.

The good news is, you will likely save more in the long run as far as credit cards are concerned. You’ll also be shopping for a fixed interest rate as opposed to dealing with a variable APR. Retailers can change their rates at any time and as regularly as they want as long as they give 45 days’ notice. A consolidated loan will give you the flexibility to pay, for up to seven years, at a rate that will not change over that time frame.

Drawbacks of Consolidation Products

The main reason not to consider a personal loan is if your combined interest rate ends up being lower or even comparable to your current terms. For some, it may not end up being much of a benefit besides having everything in one place. That being said, as far as most consumer credit cards are concerned, you’ll usually get a better deal consolidating, but make sure to compare options.

If your credit is poor, you’ll definitely want to find ways to increase your score if you can. But even if you have fair or good credit, there are things you can do to improve your situation.

How You Can Get a Better Personal Loan to Pay Off Credit Card Debt

  • Finding a qualified cosigner can help you get a better rate and terms regardless of your score. If you have bad credit, it may be your only option to qualify at all.

  • Double-check your credit report to make sure there are no delinquent payments or discrepancies you may be unaware of.

  • If you can pay off or pay down some of your loans or cards, lowering your debt-to-income ratio prior to applying will make it easier to get approved even if you have poor credit.

What Else Should I Do Before Applying?

Add up all of your credit card debts and take a look at the combined total and the various APRs. For many, the mounting stack of high-interest cards may feel unbearable, so the idea of one fixed payment through a single loan may help alleviate some of that stress.

If you have good credit and the interest rates and monthly payments are not out of control, determine whether it makes more sense to tackle the debts individually or go through with consolidating them.

You can then use a calculator to see what a consolidated personal loan may look like for you. It’s as simple as inputting the total balance of your credit cards for the amount and selecting the repayment terms.

Once you’ve decided how much you need to borrow, get pre-approved with several lenders, and compare rates. If you decide to go forward, make sure not to take out any additional loans or credit cards, as this will make it more difficult for you to be approved.
 

 

Once you’ve taken these steps, it’s time to fill out an application.

How to Apply

Complete an application with a reputable lender. If you’re doing it online, this process is usually straightforward and streamlined, and you can even receive funds within a day or two of completing the application.

Application Checklist

  • Credit Score
  • Government-issued ID
  • Proof of residence
  • Income verification, including
    • Proof of employment
    • W-2 (or 1099 if you are self-employed)
    • Pay stubs and bank statements
  • Cosigner information (they will need all of the above), if applicable

If you’re still on the fence as to whether or not a personal loan to pay off credit card debt is right for you, here are some of the most commonly asked questions.

FAQ

Q: Will consolidating credit cards hurt my score?
A: This will not negatively affect your score as long as you make payments on time and do not continue to charge your credit cards. That being said, the consolidation will remain on your credit report for seven years, which may make it more difficult to apply for other loans. Also remember that closing credit card accounts after consolidating may impact your “credit age,” which does moderately affect your score.

Q: I get ads for debt consolidation all the time, what do I need to watch out for?
A: Unfortunately, because many of those looking to consolidate debt tend to be in a vulnerable financial position, there’s a market for predatory lenders to promote bad products. If you want to consolidate, make sure it is with a bank, credit union, or reputable online lender.

Q: Is there a difference between debt settlement and debt consolidation?
A: Yes. Debt settlement is a renegotiation of the loan terms to a new amount, less than what was originally owed. Debt consolidation, by contrast, is essentially a refinance of the entirety of what was borrowed, which means that the lenders will be repaid in full. While the idea of debt settlement may sound more appealing on its face, those who pursue it will be subject to tax penalties and higher fees, as well as a penalized credit score.

Summary

A personal loan to pay off credit card debt can be a great way to streamline high-interest bills into one manageable monthly payment. If you’re sick of the payments and ridiculous APRs, consolidation may be right for you.