Debt consolidation
Using a Personal Loan to Consolidate Credit Card Debt: Costs, Credit Checks, and Risks
A debt consolidation loan swaps several card balances for one fixed payment. It can cut your interest, but only if the rate and fees beat your cards and the cards stay paid off.
What it means to consolidate with a personal loan
You take out one personal loan, use the money to pay off your credit cards, and then repay the loan in fixed monthly payments over a set term, often two to seven years. Lenders sometimes call it a debt consolidation loan. Some send the money straight to your card issuers. Others deposit it in your bank account, and you pay the cards yourself.
Most personal loans are unsecured and have a fixed rate, so the payment doesn't change and there's a date when the debt is gone. That's the main difference from a credit card, where the minimum payment shrinks as the balance falls and payoff can stretch on for years.
How it differs from a 0% balance transfer
| Personal loan | 0% balance transfer | |
|---|---|---|
| Rate | Usually fixed for the whole term | 0% or low for an intro period, then the card's regular APR |
| Up-front cost | Origination fee on some loans, often taken out of the money you get | Transfer fee, often 3% to 5% of the amount moved |
| Payment | Fixed, with an end date | Minimum payment; you set your own pace |
| Best fit | You need several years, or a fixed plan, to pay it off | You can clear most or all of it before the promo ends |
| Limit | Loan amount set by the lender | Card's credit limit, which may not cover everything |
Neither is better for everyone. Our personal loan vs. balance transfer guide goes through the tradeoffs, and how 0% balance transfers work covers promo periods and transfer fees.
What a consolidation loan costs
The APR, compared with your cards
The loan only saves interest if its APR is meaningfully lower than what your cards charge. Personal loan rates depend heavily on your credit score, income, and existing debt. Someone with strong credit may be offered a rate well below typical card APRs. Someone with weaker credit may be offered a rate close to, or above, what their cards already charge. A prequalified offer from a lender is the only way to know your number.
Origination fees
Some lenders charge an origination fee, usually a percentage of the loan, and take it out of the money you receive. A 5% fee on a $10,000 loan means about $9,500 arrives, but you repay the full $10,000 plus interest. If you need exactly enough to pay off your cards, borrow a bit more to cover the fee, or plan to pay the gap from savings. The loan's APR already includes required fees, which is why the APR can be higher than the interest rate. Comparing APRs between lenders is the cleaner comparison.
The term
A longer term lowers the payment but adds interest. Here's an illustrative example using round numbers, not current rates: you owe $9,500 across two cards and borrow about $9,896 at 13% APR with a 4% fee, so the $396 fee comes out and $9,500 pays off the cards.
| Term | Monthly payment | Interest | Total repaid (incl. fee) |
|---|---|---|---|
| 36 months | ~$333 | ~$2,108 | ~$12,003 |
| 48 months | ~$265 | ~$2,847 | ~$12,743 |
| 60 months | ~$225 | ~$3,614 | ~$13,510 |
In this example, the cards were $6,000 at 24% and $3,500 at 28%, with $285 a month in payments. Kept up, those payments would take about 66 months and about $7,334 in interest, or about $16,834 in total. All three loan terms cost less in total here, but only the 36-month loan has a higher payment than now. The 60-month loan lowers the payment to about $225 and still costs about $3,300 less in total, because the rate is much lower. With a smaller rate gap or a bigger fee, a long term can end up costing more than the cards. You can run this with your own cards in the debt consolidation calculator.
Other costs to ask about
- Prepayment penalties. Many personal loans have none, but check, because paying early is one of the best ways to cut the cost.
- Late fees and what a missed payment does to your rate.
- Optional add-ons like credit insurance, which raise the cost and are rarely required.
Credit checks: soft pulls, hard pulls, and your score
Prequalification usually uses a soft credit inquiry, which shows you an estimated rate and doesn't affect your credit score. Many lenders and some credit unions offer it, and it's worth doing with more than one before you apply.
A full application usually triggers a hard inquiry, which can lower your score slightly for a while. The CFPB explains the difference between soft and hard inquiries.
After you consolidate, a few things can move your score in both directions. A new account and a new inquiry can push it down a little at first. Paying cards down to zero lowers your credit utilization, which often helps. On-time loan payments help over time. Closing old cards can raise utilization and shorten your credit history, so many people keep them open and unused, but that only works if you won't use them.
The biggest risk: running the cards back up
A consolidation loan pays off the cards, but it doesn't close them. If the balances creep back, you end up with the loan payment and new card debt, which is worse than where you started. Before you consolidate, it helps to know why the balances built up and what will be different. Some people lower their credit limits, remove saved cards from shopping sites, or keep one card for a single fixed bill.
When it tends to help, and when it may not
It's more likely to help when:
- You're offered an APR clearly lower than your cards' APRs, after the fee.
- You can afford the fixed payment every month without new card spending.
- You'd rather have one payment and a fixed end date than several revolving balances.
- Your balance is too large for a single balance-transfer card's limit, or you can't pay it off within a promo.
It may not help when:
- The offered APR is close to your current card rates, or the fee eats the difference.
- You'd pick a long term just to get a lower payment and it ends up costing more in total.
- You could realistically pay the cards off within a 0% promo period.
- Spending, not interest, is what's driving the debt.
There's no one-size answer. The right choice depends on your rates, your budget, and what you qualify for.
Other options worth comparing
- A 0% balance transfer, if you qualify and can pay it off inside the promo.
- Calling your card issuer to ask for a lower APR or a hardship program.
- A nonprofit credit counseling agency, which may offer a debt management plan with lower card rates. See the CFPB on credit counseling.
- Paying more on the highest-APR card first with the money you have now.
Be cautious of debt settlement or "debt relief" companies that charge fees before they deliver results or tell you to stop paying your cards. The CFPB explains how debt relief programs work and their risks.
Questions to ask before you sign
- What's the APR, and is it fixed?
- Is there an origination fee, and is it taken out of the loan amount?
- How much will actually reach me or my card issuers?
- What's the monthly payment, and what's the total I'll repay over the term?
- Is there a prepayment penalty?
- Will you pay my card issuers directly?
- Is prequalification a soft credit check?
For official background, read the CFPB's what to know about consolidating credit card debt and its explainer on personal installment loans.
Run your own numbers
The free debt consolidation calculator uses the inputs you choose and standard formulas. No sign-up, no credit check.
Open the debt consolidation calculator