Is Using a Personal Loan to Pay off Credit Card Debt a Good Idea?

According to CreditDonkey, the average American has $5,331 in credit card debt (2019). And Experian finds the average personal loan balance is $15,143.

So, is using a personal loan to pay off credit card debt a good idea?

Of course, a personal loan that offers a lower interest rate than the credit card you’re having issues paying off will save you money in the long run.

However, a few other options include:

  • 0% balance transfer to another credit card (good to excellent credit is typically required)
  • a 401(k) loan (only 50% of vested balance or $50,000 is available, whichever’s less)
  • or a home equity line of credit (HELOC) or loan (risks your home being foreclosed on if debt is unpaid)

Considering all available options and choosing the solution that best fits your specific financial situation is ideal.

Is Using a Personal Loan to Pay off Credit Card Debt a Good Idea?

using a personal loan to pay off credit card debt a good idea

Sometimes, using a personal loan (preferably from a local credit union) is the best solution, especially if your credit score has suffered considerably.

With a poor credit score, you may not be eligible for a balance transfer credit card.

Also, a large number of expert financial advisors warn against taking out a 401(k) loan as it can minimize the effect of compound growth in your account.

Personal loan to pay off credit card debt – local vs online

Personal loans have their risks too. Credit unions will perform a hard pull to determine your creditworthiness which will momentarily damage your credit score. Online lenders typically perform soft pulls which don’t harm credit score.

However, since credit unions are not-for-profit, their rates are generally more affordable for those with poor/bad credit compared to online lenders who are profit-seeking.

List of online lenders that’ll offer a personal loan to pay off credit card debt

According to LendingTree, personal loan usage is increasing. Between 2012 and 2018, total American personal loan amount has more than doubled from $55.7 billion to $125.4 billion.

Over 60% of citizens use a personal loan to pay off credit card debt or to consolidate debt. If you’re interested in joining the crowd, below are a few personal loan options you can choose to help pay off credit card debt:

Payoff

Key Points:

  • APR range: 5.99% – 24.99
  • Loan amounts: $5,000 – $35,000
  • Minimum credit score: 640
  • Minimum annual income: $40,000
  • Debt-to-income ratio: 50%
  • Soft credit pull: Yes

Payoff is a company who’s main purpose is to assist those who desire to pay off credit card debt.

They’re not a bank, instead, they team up with lending partners (mostly credit unions), to offer users affordable personal loans to assist in paying off credit card debt.

Their trademarked Payoff® Loan offers fixed monthly payments, aids in increasing your FICO score (may boost score up to 40 points) and offers no late payment fees.

Their loan interest range in between 5.65% all the way to 22.59%. Note, you’re also required to provide an origination fee’ of 2% – 5% of the value of the loan.

They have no early payment, late or returned check fees. This has, therefore, made their loan to be very predictable once it is set up.

Applicants are required to not have current delinquencies and payments that are 90 days late within the last 12 months.

Prosper

Key Points:

  • APR range: 6.95% – 35.99%
  • Loan amounts: $2,000 – $40,000
  • Minimum credit score: 640
  • Minimum debt-to-income ration: 50%
  • Minimal annual income: none
  • Soft credit pull: Yes

Prosper is a marketplace lender where individual investors come together to finance your loan. It provides highly competitive terms and rates which brings them head to head with other online lenders and traditional banks.

Prosper loans are offered in an amount of $2,000 – $40,000. Their interest rates range between 6.95% all the way to 35.99% APR.

Borrowers with low credit scores should be cautious about the high-interest rates. On the other hand, those individuals who have the best credit history can also get leading rates of the market.

With Prosper, an origination fee must be paid. Their origination fee ranges from between 2.5% to 5% of the value of the loan, although it depends on the history of your credit.

Late fees are either $15 or 5% (whichever’s greater) and insufficient funds fee is $15.

One Main Financial

Key Points:

  • APR range: 16.05% – 35.99%
  • Loan amounts: $1,500 – $30,000
  • Minimum credit score: none
  • Minimum debt-to-income ration: N/A
  • Minimal annual income: none
  • Soft credit pull: Yes

One Main Financial does not have any minimum credit score. They accept borrowers with the poorest credit score.

Their origination fees varies with the state they’re located while the rates of interest range between 16.05% and 35.99%.

One Main Financial is mainly good for those with bad/no credit yet need funds quickly. If you cannot get approval from other personal loans due to your past credit mistakes, this could be a decent option.

They offer loans starting from $1,500 all the way to $30,000. they’re given in 2 or 5-year terms. They also provide secured loans.

A secured loan is where one may pledge collateral such as the title of a car in order to be given low-interest rates. In this situation, if you don’t service the loan, you’re likely to lose the car.

MeetTally.com

Key Points:

  • Minimum credit score: 660
  • Soft credit pull: Yes
  • APR range: 7.9% – 25.9%
  • Loan amounts: $2,000 – $20,000

MeetTally.com (not a personal loan business) will assists you in paying off your credit card debt by “tallying” which cards to prioritize to reduce late fees and APR.

It offers a Tally line of credit that’ll save you money as you reduce credit card debt.

A Tally advisor will help you pay off and manage the credit card debts. They provide the newest line of credit that has the lowest rates of interest.

Following your credit score and history, you’re offered interest rates that range from 7.9% to 25.9% yearly.

The Loan Exchange

Key Points:

  • Loan amounts: $2,600 – $100,000
  • Loan term: 47 – 180 months
  • APR: 13.33%
  • Monthly payments: $80.14 to $1,068.50
  • Minimum credit score: 500
  • Soft credit pull: Yes

The Loan Exchange helps to link borrowers with lenders without harming their credit score. Currently, they only offer loans from 3 verified lenders, however, they’re expanding their network.

They offer loans that can be used for college debt, business expenses, mortgage or any number of reasons. Loans are usually available within a few business days.

They are somewhat limited in scope as they’re only available in these states:

  • California
  • Delaware
  • Idaho
  • Arizona
  • Missouri
  • Utah
  • Wisconsin
  • New Mexico
  • Kentucky
  • South Carolina

So if you reside in the above states, The Loan Exchange is another option.

Keep it personal

Again, whether or not using a personal loan to pay off credit card debt is a good idea depends on your unique circumstances. If you can borrow money at an affordable rate and are able to stay on top of monthly payments, then this might be the right path to take.

lendingtree one main financial payoff personal loan to pay off credit card debt prosper
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