The Pros and Cons of Using Personal Loans to Pay Off Credit Card Debt

Getting a personal loan can be a great way to help pay down existing high-interest debt and help to secure a healthy financial future. There are plenty of institutions that offer them, including banks, online lenders, and credit unions. Depending on your creditworthiness, there are probably thousands of lenders at your disposal, each with its own rates and repayment periods.

However, is a personal loan the right choice for you? Before you make a decision, it’s important to weigh both pros and cons of personal loans to pay off credit card debt. 

What Are Personal Loans?

A personal loan is typically an unsecured loan — you don’t need to put up collateral — provided by a financial institution. In other words, if you default on the loan, you’re not at risk of losing your asset, such as your home. 

You’ll typically find fixed-rate loans, meaning that your monthly payments or installments remain the same throughout the lifetime of the loan. Rates can range from 6% to 36% APR, with the lowest rates going to those with the highest credit scores and incomes. Repayment terms will also differ between lenders. These can range from a few months to a few years. 

Personal loan rates are usually lower compared to ones you’ll find on credit cards. The amount you borrow also tends to be higher than the credit limit on your cards. The specific amount you can take out will depend on a lender’s qualification requirements, including your credit history, credit score, income, and your debt-to-income ratio (DTI).

Your DTI measures how feasible it is for you to take on another loan. If lenders determine that you’ve taken on too much debt, these companies can conclude that you’re too risky and either deny your application or charge you a higher interest rate.

Lenders may also have minimum credit score requirements. Many who offer competitive rates want consumers to have at least a 600 credit score, even as high as 680 if you want a large personal loan. Those who don’t qualify may need to take out a secured loan (where you put up some type of collateral) or get a co-signer, both of which come with risks. 

What Can I Use Personal Loans For?

Though the fine print varies from lender to lender, here’s some ideas of what you can expect to be able to use a personal loan for:

  • Pay off medical bills – Even if you have health insurance, you may need to pay hefty out-of-pocket costs if you’ve paid for out-of-network providers or you have a high deductible amount you haven’t met.
  • Consolidate high-interest or credit card debt – Some borrowers find their debt more manageable by rolling everything into one payment. Personal loans can offer lower interest rates, helping you save money. 
  • Pay for a wedding – The average wedding cost in the US is over 30,000 dollars.  Couples may need help paying for common expenses. 
  • Pay for a vacation – Sometimes it’s easier to pay for a vacation slowly over time using a personal loan. 
  • Pay for home repairs or improvements – As a homeowner, you know you need to pay for maintenance or repairs. A personal loan can help fill in the gaps if costs are higher than anticipated. 
  • Unexpected Costs – Over 50 percent of Americans cannot afford a surprise expense in the amount of a thousand and some even as little as four hundred dollars.  

Pros and Cons of Using Personal Loans to Pay off Credit Card Debt

Before determining that the best way to consolidate credit card debt is to take out a personal loan, consider these advantages and disadvantages. 


  • You can use them for almost any purpose – Lenders typically let borrowers use these types of loans for many reasons, including home improvement, debt consolidation, and funding a business. (One caveat is many lenders will not lend for student loan consolidation).
  • You don’t need collateral – Personal loans are typically unsecured loans, so you don’t have to put up any type of collateral to take one out. It’s seen as a more favorable type of loan since you’re not at risk of losing an asset such as your home or car if you find yourself falling behind on payments. 
  • You may not need great credit – Many personal loan lenders aren’t as strict as other forms of debt like home equity loans. Even with fair to good credit, you may qualify for a decent rate.
  • You have choices in repayment terms – Most lenders allow you to customize your term and monthly payments.
  • You can get a decent rate – Some lenders offer competitive rates that can be often lower than other forms of loans, assuming you have a good credit history and can qualify for a loan. 


  • You may not qualify for the best rates – A personal loan is still a loan, meaning it relies on your credit score. If you have less-than-stellar credit, you might qualify for rates that are higher than the ones offered by credit card companies. 
  • You may have to pay fees – Many personal loans charge what’s called an origination fee, which is what you pay the loan.  Some lenders require you to pay this upfront at closing or roll it into your overall rate, making your total loan costs higher than anticipated. These fees can be as much as 1% to 6% of the amount you borrow, sometimes higher. 
  • You may face high monthly payments – If you only qualify for a higher interest rate, the amount you owe may be larger each month, especially if you consider any closing or origination fees you need to pay. 
  • Your credit score could be at risk – For both secured and unsecured loans, a late payment can negatively impact your credit score. 
  • There are penalties – Aside from late fees; some lenders may also charge prepayment penalties, which means you could pay a fee for paying off your loan earlier than anticipated. 
  • You may lose your collateral – If the only way you can qualify for a personal loan is to get a secured one, you’re putting your asset at risk if you can’t make on-time payments.
  • Your credit score may decline – If you default on your personal loan or even make late payments consistently, it will drive down your credit score. 

Are There Any Alternatives?

If you’re a homeowner, you have alternative options such as home equity loans if you decide that a personal loan isn’t for you. However, most home equity products have stringent qualification requirements, such as a credit score above 680. 

Another alternative is to partner with Point. 

Point’s Home Equity Investment (HEI) offers you up to $350,000 depending on the amount of home equity you have and your home value. Point invests in your home’s future appreciation. If your home value goes up, we share in the profits. If it doesn’t, we also take a loss.

The best part is that there are no interest rates or out-of-pocket costs to worry about; our qualifications are also less strict than most traditional home equity lenders. There are no monthly payments and a 30 year payback period, so homeowners who partner with us can free up their cash flow. Instead of spending your money on paying down debt every month, put your income towards other things that matter. With Point, you get a partner that wants to help you achieve a secure financial future.

It takes just a few minutes to pre-qualify, and seeing how much you can get won’t affect your credit score. 


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