Overview

Moving high‑interest credit card debt to a personal loan is a common debt-management strategy. The goal is simple: pay less interest, get a fixed payment schedule, and close the revolving account cycle that keeps many borrowers trapped paying mostly interest. In my 15 years advising clients, the most successful consolidations meet three tests: lower total cost, improved cash flow, and behavioral change to stop adding new card balances.

I’ll walk through when this swap makes sense, how to compare offers, calculations to test potential savings, and pitfalls to avoid. Sources used include the Consumer Financial Protection Bureau and Federal Reserve research on interest rates and lending trends (Consumer Financial Protection Bureau; Federal Reserve).

When a personal loan is likely a better option

A personal loan can replace high‑interest credit card debt when all of these are true:

  • The personal loan’s APR is meaningfully lower than the weighted average APR of your credit cards after accounting for fees.
  • The loan term produces a monthly payment you can afford without stretching your budget.
  • The loan has no prepayment penalty and reasonable origination fees (or none).
  • You can qualify for the lower rate based on your credit score, income, and debt‑to‑income (DTI) ratio.
  • You commit to not adding new balances to cleared credit cards.

Typical benchmarks I use in client consultations:

  • Target a personal loan APR at least 6–12 percentage points lower than the credit card APR when cards carry double‑digit rates (e.g., 20%+). That gap usually produces noticeable interest savings.
  • If a balance transfer card with a 0% intro APR is available and you can realistically pay within the 0% period, compare that option. Balance transfer fees usually run about 3% of the transferred balance, so do the math.

Authorities: The Consumer Financial Protection Bureau recommends comparing total loan costs, not just APR when shopping, and watching for fees that can offset headline rate savings (CFPB).

Calculate whether you’ll save money: a worked example

Assume $15,000 in credit card debt at an average APR of 22% and you have the option to take a 5‑year personal loan at 8% APR with a 2% origination fee.

  • Card scenario (22% APR, minimums ignored): interest accrues rapidly; if you paid a fixed amount equal to the loan payment below, total interest would be much higher.

  • Loan scenario: 8% APR over 60 months on $15,000 gives a monthly payment of about $304 and total payments of $18,240. Add a 2% origination fee ($300) paid up front or rolled in, total cost ~ $18,540.

  • If you instead paid $304 monthly on the credit card at 22% APR, the payoff time would be shorter than the minimum but interest would be much higher. Using standard amortization, the total cost on the card would exceed the loan cost by several thousand dollars. In practice, I use a loan-versus-card calculator to show clients the difference in total interest paid and months to repay.

Work the numbers before you sign: small differences in APR or the presence of fees can flip the outcome.

Compare personal loan vs other options

  • Balance transfer credit card: Often offers 0% APR for 12–21 months with a 3% transfer fee. This can be cheaper short-term than a personal loan for disciplined borrowers who can pay the balance before the promo ends.
  • Home equity loan or HELOC: May offer lower rates since they are secured, but they use your home as collateral and often have closing costs. Only consider if you understand the increased risk.
  • Debt settlement or credit counseling: Fit for those already struggling to make payments. Settlement can reduce principal but damages credit and may have tax consequences; credit counseling can negotiate lower payments or enroll you in a debt management plan.

For a primer on alternative uses and comparisons, see our pages “When a Personal Loan Is Better Than a Credit Card” and “Personal Loan vs. Credit Card: Which Is Better for Debt Consolidation?” on FinHelp.io.

(Links: When a Personal Loan Is Better Than a Credit Card: https://finhelp.io/glossary/when-a-personal-loan-is-better-than-a-credit-card/; Personal Loan vs. Credit Card: https://finhelp.io/glossary/personal-loan-vs-credit-card-which-is-better-for-debt-consolidation/)

Eligibility and credit impact

Who can qualify?

  • Credit score: Many lenders price personal loans more favorably for scores 650+; the best rates go to 700+ borrowers. Exact cutoffs vary by lender.
  • Debt‑to‑income (DTI): Lenders look for a manageable DTI; lower DTI improves approval odds and the rate offered.
  • Income and employment: Stable income documentation speeds approval and reduces perceived risk.

Credit-score effects to expect:

  • Short term: Applying for a loan causes a hard inquiry that can shave a few points from your score.
  • Medium term: Paying off credit card balances reduces credit utilization, which often raises your FICO score quickly.
  • Long term: Adding an installment loan improves credit mix (revolving vs installment) and, if you make on‑time payments, helps your score.

In my experience, clients who pay down revolving balances and keep accounts open (rather than closing cards) usually see a net credit score improvement within six months.

Fees and other costs to watch for

  • Origination fees: Often 1–5% of the loan amount. If rolled into the loan, they increase your financed principal and interest paid.
  • Prepayment penalties: Rare on personal loans, but confirm with the lender.
  • Late fees: Missing payments can lead to late fees and higher rates for credit cards.
  • Balance transfer fees: If comparing to a 0% balance transfer card, include the typical 3% fee in your cost comparison.

Behavioral and practical considerations

Take these non‑math factors seriously:

  • The risk of re‑racking cards: Consolidation works only if you avoid re‑accumulating card balances. For many people, the temptation to use paid‑off cards leads to worse outcomes.
  • Fixed vs variable payments: A personal loan gives a predictable monthly payment and clear payoff date. That discipline helps many borrowers avoid the revolving debt cycle.
  • Budget changes: Lower monthly payments can free cash flow for rebuilding an emergency fund — a key to avoiding future card debt.

Step‑by‑step decision checklist

  1. Gather balances and APRs for all cards; compute the weighted average APR.
  2. Check your credit score and recent DTI ratio.
  3. Request prequalified offers from several lenders (soft pulls) to compare APRs and fees.
  4. Calculate total cost for each option (loan with fees, balance transfer with fee, or staying on cards). Use an amortization calculator.
  5. Compare monthly payments and decide whether you can maintain a higher payment to shorten payoff.
  6. If you proceed, pay off the cards completely and either freeze or cut up cards to prevent new charges (or leave accounts open but store cards securely).
  7. Track progress and avoid new revolving debt until you build a 3–6 month emergency fund.

Red flags and when not to consolidate

  • You can’t qualify for a lower APR after fees — consolidation may not save money.
  • The lender requires high origination fees that erase interest savings.
  • You lack the discipline to avoid new card spending; consolidation could worsen your situation.
  • Your credit profile is so thin or poor that a personal loan would carry similar or higher rates than your cards.

If you’re already falling behind, consider contacting a non‑profit credit counselor or exploring a debt management plan that negotiates interest rates and creates a payment plan.

Example scenarios from practice

  • Sarah saved roughly $3,200 in interest over five years by moving $15,000 at 22% APR to an 8% five‑year personal loan with a 2% origination fee. The predictable payment also helped her budget and rebuild savings.
  • John, a small business owner, used a personal loan to consolidate multiple cards, but then accumulated new charges on cleared cards. He ended up back at square one. We closed his cards and rebuilt an emergency fund to avoid repetition.

These cases illustrate that the math matters — and so do habits.

Helpful resources and further reading

  • Consumer Financial Protection Bureau — shopping for a personal loan and understanding loan costs (CFPB).
  • Federal Reserve data on interest rates and household debt trends.
  • FinHelp glossary entries: “Using a Personal Loan to Consolidate High-Interest Credit Card Debt” and “When a Personal Loan Is Better Than a Credit Card” for related guidance and calculators.

Links: Using a Personal Loan to Consolidate High-Interest Credit Card Debt: https://finhelp.io/glossary/using-a-personal-loan-to-consolidate-high-interest-credit-card-debt/; When a Personal Loan Is Better Than a Credit Card: https://finhelp.io/glossary/when-a-personal-loan-is-better-than-a-credit-card/

Final takeaways

A personal loan should replace high‑interest credit card debt when it reduces your total cost after fees, gives you an affordable and fixed payment, and you commit to stop new card borrowing. Run the numbers, compare fees and terms, and consider both behavioral and financial implications before you decide.

Professional disclaimer: This article is educational and does not substitute for personalized financial advice. For guidance tailored to your situation, consult a certified financial planner or credit counselor. Sources: Consumer Financial Protection Bureau; Federal Reserve research; industry rate surveys.