Atlantic Financial FCU branches will be closed on Monday, May 27th for Memorial Day. Enjoy convenient access to your accounts via online banking 24/7.

Personal Loan to Pay Off Credit Cards – Is It a Good Idea?

A woman looks at her credit cards and wonders if she should take out a personal loan to pay off her credit card debt.

Are you considering taking out a personal loan to pay off credit cards? Consolidating your card balances in a single loan is an effective way to manage debt that might be getting out of control, but it takes patience and discipline to make it work. Let’s take a look at personal loans and whether they might be the right option for you.

Getting Personal: Personal Loans to Pay Off Credit Card Debt

Are you juggling growing balances on several credit cards and perhaps even struggling to meet payment deadlines or minimum balances? If your card debt is becoming a problem, then it’s time to look at more sustainable ways to pay off what you own and manage your spending.

Personal loans are a popular and effective way to pay off your credit cards in full, replacing them with a more manageable and predictable monthly payment. At the same time, you work to get your spending under control. Here’s how it all works.

What Is a Personal Loan?

Personal loans are granted by credit unions, banks, and online lenders to fund a wide range of personal expenses from unavoidable purchases to dream weddings. With fixed monthly payments over terms between two and seven years and interest rates well below those of most credit cards, they are also a popular choice for consolidating credit card debt.

The requirements to qualify for a personal loan are relatively easy to meet. You will need:

  • Proof of a stable and steady income
  • A fairly good credit score
  • An acceptable debt-to-income ratio

The fixed annual percentage rate (APR) you pay on your loan will depend on your income, credit score, and existing debt levels. Typically, your lender will allow you to lower your monthly payment by paying off your loan over a longer period or at a higher APR. 

How Do Personal Loans Work to Pay Off Card Debt?

Taking out a personal loan gives you a single lump sum that you can use to pay off your credit cards, allowing you to replace balances on multiple cards, each potentially with its own interest rate and minimum payment rules with a single, predictable monthly payment.

A personal loan allows you to realign your spending within your means, allowing you to plan for the future while paying off your debt at a reasonable interest rate. It only works, however, if you stop spending on your credit cards. If you continue to rack up high-interest balances, your loan will become just another debt you’re struggling to pay back.

Pros of Using a Personal Loan to Pay Down Credit Cards

Consolidating high-interest debt from one or more credit cards into a single personal loan comes with some clear advantages.

Fixed, Single Monthly Payment

With a fixed rate, you’ll pay exactly the same amount every month in a single bill, even if interest rates rise. 

Lower APR

While the APR you do pay will depend on your overall creditworthiness, it will most likely be dramatically lower than the rates you were being charged on your credit cards.

Improved Credit Rating

By eliminating missed payments and slowly improving your debt-to-income ratio, a personal loan can also improve your credit score.

No Collateral

Personal loans are relatively easy to apply for. Best of all, most personal loans do not require you to provide collateral in the form of cash or an asset such as a home, car, or boat.

Cons of Using a Personal Loan to Pay Down Credit Cards

At the same time, taking out a personal loan will have an impact on many aspects of your financial life. It’s important to consider some potential downsides.

A Lower Rate Is Not Guaranteed

A lower APR is by no means guaranteed. Depending on your credit score, your debt, and the term of your loan, you could end up paying more each month to clear your debts.


In addition to interest, personal loans come with fees such as loan origination charges, as well as late payment fees, and sometimes even penalties for paying off your loan early.

Miss Out on Rewards

You will also miss out on a host of potential rewards when you cancel or stop using your card, including cash-back, redeemable points, loyalty bonuses, and benefits such as access to fitness clubs or business class travel.

Interest Is Not Tax Deductible

Unlike interest on certain other types of debt, such as home mortgages or some student loans, the interest on your personal loan is taxable.  

Are There Alternatives to Personal Loans?

Personal loans are not for everyone. They require a long-term commitment and major changes in your budgeting and spending habits. A loan might not be a good option for you if you are:

  • Carrying a manageable amount of card debt
  • Not ready to give up your cards, rewards, or perks
  • So indebted you are unlikely to qualify for a loan.

If  loan is not going to work for you, there are a number of alternative ways to better manage your credit card debt:

  • Applying for a balance transfer credit card. These cards let you consolidate balances and avoid interest charges for up to 21 months while you get ahead on payments.
  • Negotiating a better rate. If you have relatively good credit, you may be able to ask your credit card issuers to lower the APR on your cards.
  • Hardship Programs. If you’re struggling to pay off your cards because of personal hardship such as a medical condition, your card issuer may be able to help.
  • Credit Counseling. Approaching an accredited credit counseling service can help you make the financial changes needed to manage out-of-control credit card debt.
  • Debt Settlement. As a last resort, approach a debt settlement company that will help you negotiate a single settlement of your credit card debts.

Is a Personal Loan Right for You?

On the other hand, a personal loan makes a lot of sense if you want to take control of your credit card debt before it becomes a major problem, and are willing to make sacrifices to achieve this. In this case, consolidating your credit card debt and being more disciplined in how you budget and spend your money is a great way to set yourself up for long-term success.

Talking to a reputable local lender like Atlantic Financial Federal Credit Union is a great first step on your journey. We are ready to partner with you to give you the tools you need to take control of your financial future.

Click below to learn more about how our personal loans can put you on the road to success.

See our personal loan options & benefits