Should You Use a Personal Loan to Consolidate Debt?

Debt reduction next exit sign.Household debt in the United States is on the rise, while wages aren’t growing at the same pace. Sometimes we need to take on extra debt to make ends meet. We have bills to pay, medical expenses, and the occasional gift to ourselves taking up space on a credit card balance. It can be tough to be consistent with our finance habits and ensure balances are paid off at the end of each month. Fortunately, there are ways to get out from under the burden of debt.

Reducing Credit Card Debt

If you’re one of the Americans holding an average of $16,000 in credit card debt, there are steps you can take to reduce your debt burden. Many Americans are now using personal loans as a form of debt consolidation.

Credit cards generally have high-interest rates, which can lead to higher monthly payments. On the other hand, personal loans tend to have lower interest rates and are easier to manage. If your credit card debt and interest rate payments are getting out of hand, you can use a personal loan to pay off your credit card debt. Using this strategy can help you lower your high-interest-rate credit card balance and consolidate it with a lower-interest-rate personal loan.

Benefits of Personal Loans

One of the main benefits of using a personal loan to consolidate credit card debt is the interest rate. In addition to having lower interest rates, personal loans tend to come with fixed interest rate terms. This means that once your interest rate is set, it will not change over the course of the loan.

Credit cards, however, almost always offer variable interest rates. This means that credit card companies can increase interest rates whenever they deem fit, and this in turn increases what you owe. Should your credit card company raise your interest rate, any late payments will end up costing even more.

Because your interest rate is likely to be lower on a personal loan, you’ll end up making predictable and possibly fewer monthly payments toward your debt. Additionally, paying off multiple credit card balances with one personal loan can simplify your payment structure. Rather than making multiple payments, you just have to make one monthly payment towards your loan.

On top of saving money and simplifying your payment structure, taking out a personal loan can also increase your credit score. Not only will your credit utilization improve because you removed your excess credit card debt, but your credit score will also increase because you have a new type of credit. This, however, only remains true if you continue paying the loan on time.

Personal Loan Downsides

Despite the benefits of personal loans, pitfalls exist. Because receiving a personal loan can be easier than getting a credit card, those with excessive credit card debt may not learn from their past mistakes. You have excessive credit card debt for a reason; because you spent too much money or you didn’t have enough savings on hand to cover emergencies. Make sure to not continue the past behavior that led you to excessive debt in the first place. Getting a personal loan is the first step.

Final Thoughts on Using a Personal Loan to Consolidate Debt

Now you need to save money, budget your expenses, and make sure to make timely payments towards your loan. Getting a personal loan to consolidate your credit card debt is generally a good idea, but only if you use common sense. Remember to not accept a personal loan that has a higher interest rate than the credit cards you’re attempting to pay off. That would make the entire process meaningless. And remember to change your behavior in the future and practice healthy spending and personal finance habits.

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Posted on May 3, 2021 by in Personal Loans

Comments & Discussion



One Response to “Should You Use a Personal Loan to Consolidate Debt?”


  • On December 7, 2021, Greta James wrote:

    It is good advice to use a personal loan to pay off credit cards to avoid the variable interest rate from credit card companies. My ex-husband ran up our credit cards and now I need to pay them off. I will contact a professional who can help me get the best loan for my situation.




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