Should you get a loan to pay off your credit card?

At a glance

• Taking out a loan to pay off your credit card could be a solution if you’re struggling with high interest rates.
• Loans typically have lower rates, but they can also result in higher monthly repayments, so make sure you’re able to afford the additional cost.
• Once paid off, make sure to close your credit card so you don’t build more debt.

Racking up credit card debt can be stressful. It can lead to a huge amount of interest which can be overwhelming to pay back, which is why some opt to take out a personal loan to repay the balance and get back on a more solid financial footing.

Here we consider the benefits of taking out a loan to pay off credit card debt, and the alternative options available.

Is it worth getting a loan to pay off a credit card?

For some, it can be. Taking out a personal loan can be a good way to clear credit card debt as the average interest rates on personal loans are usually lower than those on credit cards, which can make repaying the debt cheaper and quicker.

This becomes an even more significant factor if you have several credit card debts. A personal loan can consolidate all this debt in one place, which can make it easier for you to pay back as you won’t need to keep track of all the different due dates.

It can also be useful if you simply want a clear route out of debt. Personal loans have set payment amounts at set times, so once the term ends, you’ll be debt-free. This isn’t the case with a credit card, where you’re only tied to making the minimum repayment each month – which although is more flexible, can also be where difficulties arise, as the debt can quickly snowball if you’re not paying more than the minimum.

However, if you’re currently benefiting from a 0% interest rate on your credit card, it may be worth holding off on consolidating with a personal loan just yet. It may also be better to avoid applying for a loan if your financial situation has changed recently, as if you can’t prove your ability to make the repayments, you may be declined, which could have an impact on your credit score (read more on how to improve your credit score if you’re concerned).

What to consider before getting a loan to pay off your credit card

Getting a loan to pay off your credit card won’t be the right decision for everyone, so here are the key things you should consider before taking the plunge:

• Interest costs. It’s important to know how much it will cost you to take out a loan in comparison to keeping your credit card. It’s worth using our loan calculator so you know exactly what your repayments could be, and from there consider how long it could take to repay your credit card if you only made the minimum payment each month, and also if you added a fixed monthly amount to help clear it quicker. These calculations will show how much you could end up paying in interest based on your current annual percentage rate (APR).
• Fees. Personal loans may come with fees, so make sure to factor this into your overall costs.
• Borrowing amount. This will impact the amount of interest you’ll have to pay, and it’s important to only borrow the amount you’ll need to clear the debt – otherwise, you could be spending extra for no reason.
• Monthly payments. Make sure that you can afford the higher monthly repayments of a personal loan, as any missed payments could impact your credit score and may even incur an additional penalty.
• Eligibility. It’s important to bear in mind that you may not even be eligible for a personal loan, particularly if you’re already struggling with high levels of credit card debt, as this could impact your credit score and chance of acceptance.

Being declined for a loan could impact your credit score and make it less likely you’ll be able to borrow money in the future. Reduce this possibility by checking your eligibility before applying with our preferred broker Loans Warehouse, without affecting your credit score.

Alternatives to using a loan to pay off credit card debt

0% balance transfer credit cards

Credit card borrowers with a small amount of debt may find that using a 0% balance transfer credit card can be a better way to clear the balance. This is because they’ll be able to benefit from an interest-free period, which means they’ll have a set time in which to repay the debt without incurring any interest whatsoever (though there’s usually a balance transfer fee to consider).

However, unlike a personal loan when monthly repayments are pre-set, a 0% balance credit card requires consumers to be disciplined with their repayments to ensure that the balance is repaid in full before the interest-free period ends. Failing to do so means that interest will begin accruing once the 0% term ends, and so they may be in the same situation later on.

Getting help with credit card debt

If you’re struggling with credit card debt and aren’t able to find an alternative solution, it may be time to seek additional support. There are a number of organisations to reach out to, including Citizens Advice and StepChange, which could help you come up with a debt management plan to help clear your debt.

Once you’ve paid off your credit card, it’s important to stop spending on it so you don’t rack up more debt in the future. If having the credit available is too tempting, it might be worth closing it altogether – read our guide on how to cancel your credit card to get started.