Using Personal Loans to Consolidate Credit Card Debt

Do you feel like you are up to your eyeballs in debt and need some help?  Nearly 75% of Americans live paycheck to paycheck, and more people need a financial lifesaver than you might think.  If you are one of these, you are not alone!

Any form of debt can be a slippery slope, but there are plenty of money-saving opportunities such as using personal loans to consolidate credit card debt, seeking help with credit counseling, and more to help you reach financial freedom sooner than imagined.

Credit Card Debt Payment Alternatives

If you have a decent credit score of at least 600, you can breathe a sigh of relief since you should be able to qualify for an alternative financing method to save money on your credit card payments by negotiating a lower interest rate.  Here are several possibilities to consider.

Credit Card Counseling

Debt counseling can be a good idea for most couples.  Paying off the debt is only half of the challenge.  The other challenge is staying out of debt by creating a household budget using sound money management principles.

The first few months after the Christmas holidays is the busiest time for credit counselors as the Christmas shopping season is the financial tipping point for many households struggling to make ends meet each month.

These counselors might also offer a Debt Management Plan where they will pay the debt balance to the credit card companies and you make payments to the counselor at a potentially lower interest rate than that charged by credit cards.

Tip: Check out the Pay Off Debt App to make a plan to get out of debt ASAP. It only costs $4.99.

This one-time fee is far cheaper than the setup (up to $75)  and monthly fees ($20-$50) for debt management plans. You can use this extra cash to get out of debt sooner.

There are other debt payoff apps that can help too.

Balance Transfers

There are several credit cards that offer an introductory 0% balance transfer interest rate for the first 12 to 18 months.

This can be a “free” opportunity, minus an initial 3% balance fee, to make interest-free payments on your credit card debt before the interest rate returns to the normal rate of 15 to 20% on any remaining balance.

While this can be a good option for those with a small balance that can be repaid within the introductory period, this is also the most dangerous option for most indebted households.

The first drawback is that most households with $16,000 in credit card debt need more than a year to pay off the balance and the temporary interest rate reprieve isn’t a permanent long-term solution.

A larger downside is that a balance transfer credit card is another credit card in the wallet and one more invitation to incur more debt.

Tip: Before applying for a new credit card and logging another inquiry on your credit report, see if Tally can lower your interest rate.

Personal Loans

One of the best (and sometimes overlooked) options to save money on credit card debt is applying for a personal loan.

Unlike transferring the balance to a 0% interest credit card, personal loans do not offer any spending power (so long as you don’t misuse it initially).

Similar to refinancing, debt consolidation via personal loans pays off one source of debt (in this case credit card debt), and a debt is owed to the new lender afterward. It may seem counter-intuitive to replace one form of debt with another, but the benefits of a personal loan lie in the potential for new interest rates.

The lowest rates currently start near 5% for a variable interest rate and near 6% for a fixed interest rate.  Many personal loan rates will peak at 10% for variable interest rates and 15% for fixed rates, although some lender rates will peak at 36% APR.

Obviously, personal loans with higher interest rates than the credit card rate is not a better option. Many lenders offer a minimum loan of $5,000 and lend up to $100,000, but there are some options on the market as little as $1,000.

Most lenders offer personal loans with repayment periods ranging from 3 to 7 years. If you cannot afford higher monthly payments for a 3 or 5-year loan, applying for the 7-year loan with lower monthly payments might be a better option.

There are plenty of different offers from multiple lenders, so it takes a bit of shopping to find the best deal.

Related Article: Good and Bad Reasons for Getting a Personal Loan

American Credit Card Debt Statistics

Debt is a four-letter word that most households think is a “normal” part of life whether it’s in the form of unpaid credit cards, student loans, a home mortgage, or an auto loan.

Through the end of 2021, the average American household had $8,701 in household credit card debt resulting in an estimated national total of $840 BILLION that needs to be paid back to the credit card companies.

With average credit card interest rates hovering near 15% at the moment, credit card debt is one of the most expensive forms of debt that somebody can repay each month.

While I am a proponent of credit cards and use them myself to earn purchase rewards, they need to be used responsibly.  This means the balance needs to be paid in full each month before the due date.

More importantly, it means no overspending. But, what do you do if you have a mountain of credit card debt and want to pay it off as quickly as possible? img 634eba5a83bc8

When is the Best Time to Consolidate Credit Card Debt?

While this is an incomplete list of how to deal with credit card debt, many people are unsure of when to consolidate their credit card debt.  While no two financial scenarios are alike, people with credit card debt should consider consolidating as soon as possible.

Each month a person continues to pay the more expensive interest rates charged by the credit card companies instead of getting a lower rate through a personal loan, counseling agency, or balance transfer credit card, they are spending more money than necessary.

When Consolidation Doesn’t Make Sense

Sometimes consolidation isn’t the best option.  This might be due to a low credit score that doesn’t allow them to qualify for a better interest rate or the debt balance is too small to justify any additional fees charged by the lender or credit card to transfer or consolidate the balance.

The latter reason will apply to people that can be debt-free in a few months or have a balance less than $5,000.

A quick fix might be selling assets and applying all proceeds to the balance.  This can be easy if you sell your $20,000 dream car and replace it with a reliable $4,000 used car.

That move alone can give you instant access to $16,000 in cash.  If you do not have a valuable car or boat to sell, even selling less valuable household items can still be very helpful.

When Consolidation Makes Sense

For those with a balance of at least $5,000 and who need several years to repay the balance, the best option is probably applying for a personal loan as the interest rate can easily be half the amount charged by credit card companies.

You also avoid the ongoing fees that debt management plans charge. However, you also lack the hands-on help of a credit counselor.

Even if the loan is only for a partial amount of the total debt balance, it is better than nothing as you will still be paying a lower interest rate.

It is also worth the time to consider speaking with a credit counselor and exploring any debt consolidation programs they might have.  Their rates might be competitive with personal loan rates, especially if your credit score is not the best.

Whether you choose to apply for a personal loan or an “in-house” credit counseling consolidation loan, it is important to look at the fees that will be charged.  If you intend to pay off the loan early, you should also ensure the lender will not charge a prepayment penalty.


There multiple ways to get out of debt, even when you have sky-high interest rates. Whether get out of debt by yourself or use a debt counselor, being debt-free is an amazing accomplishment.

 When do you think is the best time to consolidate? What's the best way?

Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.