Should You Use a Personal Loan to Pay Off Debt

Debt may seem like bad news, but it’s not unusual for people to find that they’ve taken on too much debt. It might be due to the sudden loss of a paycheck, an unexpected expense, or a planned adventure like a dream vacation. Debt can also happen when starting a new business.

And the good news is you have choices for managing your higher-rate credit card debt. Start by examining your finances and work to create a budget. Then, look at your options. For example, if one set regular monthly payment would help you keep to your budget, you might consider consolidating into a personal loan to pay off your debt. This approach may even save money on higher-rate interest.

To help you think about whether debt consolidation loans are a good idea for you, we’ve summarized the pros and cons of using a personal loan to pay off credit cards. cards.

Pros of using a personal loan to pay off debt

Paying off credit card debt may make it easier to manage your money

Many people have used personal loans to pay off debt. Some find that it makes money management easier. One personal loan for debt consolidation could let you combine several high-interest credit card debts into one set regular monthly payment, with a fixed interest rate and repayment term. In fact, 87% of surveyed debt consolidation customers told us their Discover^® Personal Loan was simpler than their other financial options.*

It may save you money in interest

Personal l loan interest rates are often lower than credit card rates. That's important, as a lower interest rate means more of your payment will be going toward the principal each month.

With more of your money going toward principal and less toward interest, you will be able to pay down your credit cards sooner. In fact, 89% of surveyed debt consolidation customers told us they expect to pay off existing debt sooner with a Discover personal loan.*

It can help you know when you may be debt free

Another advantage of consolidating credit card debt into a personal loan is the clear end date for your loan. The payment may be larger than the minimum balance on credit card accounts, which could be as little as 1% or 2% of the balance. With a fixed repayment term, you can watch your balance go down. And you’ll have a fixed date by which your loan will be paid in full. That’s something to look forward to.

Fixed monthly payments could mean easier budgeting

Credit cards may be a convenient form of payment for many people. But credit cards have variable interest rates. This means that if rates increase, you could end up paying more.

They are also a form of revolving credit. That means if you don’t pay off your balance in full every month, you could end up paying more in interest.

With a personal installment loan, you’ll have one set regular monthly payment. This may make it easier to budget because you'll know exactly how much to pay toward your loan every month.

Cons of using a personal loan to pay off debt

It is not a solution by itself

A personal loan for debt consolidation may be useful if you have higher-interest credit card debt. But creating good financial health requires more than a single tool.

If you have too much debt, or what is considered bad debt, you may want to work on your credit health before taking out another loan and adding to your debt burden. To achieve this, you should try to reduce your higher-interest debt as much as possible and do your best to avoid going into debt again.

Some lenders may charge you fees

If you are thinking about getting a personal loan to pay off credit card debt, be sure to compare different lenders and calculate the total cost of borrowing before applying.

This step is crucial because, in addition to interest, some lenders charge application fees, origination fees, prepayment penalties, late payment fees, payment processing fees, and more. When these fees add up, they may reduce or eliminate any potential savings. But fees can be avoided. With Discover Personal Loans, there are no fees at all as long as you pay on time.

Your credit health can affect your interest rate

The average interest rate for credit cards is typically higher than for personal loans. It is important, to research to know if you might qualify for a better rate.

Make sure you know the interest rates you are paying on your credit cards. Then, try to find a personal loan lender offering a better one. Factors like your credit score, repayment history, and any fees can each impact your annual percentage rate.

Is a debt consolidation loan a good idea for you?

Ultimately, your financial health is in your hands. Remember, using a personal loan to pay off debt doesn’t protect you from getting into debt with higher-interest credit cards again. A personal loan could be an important part of an overall plan for debt management—and it might help you maintain good financial health.

As you consider your options, it is important to do your research. Look at what you currently owe, how much you're paying each month, and how long it might take you to pay it off. Then try our debt consolidation calculator to see how much you might save in interest with a Discover Personal Loan.

Using a Personal Loan to Pay off Debt