8 Pros and Cons of Using Personal Loans to Consolidate Credit Card Debt

Money Girl explains the pros and cons of using personal loans to consolidate or pay off credit card debt. You’ll find out the best places to apply for a personal loan and how consolidating affects your credit.  

Laura Adams, MBA
8-minute read
Episode #405

Cons of Using Personal Loans to Consolidate Credit Card Debt

Here are three main cons about using a personal loan to consolidate your credit card debt:

Con #1: Continuing to Use Credit Cards

Doing a consolidation should be part of a bigger plan to pay off debt. If you use a personal loan to pay off your credit cards, but then rack them back up, you’ve gotten deeper into debt. So, you must be committed to never carrying credit card balances again.

Those clean cards can be awfully tempting! Make sure you get a fresh start by only making charges that you can pay off in full each month.

If you continue to accumulate debt, it doesn’t matter how many times you move it around to lower interest options, it will continue to be a drag on your finances and keep you from building wealth.

So know your own capabilities, financial habits, and be honest with yourself. If you don’t have the discipline to use your credit cards wisely after a consolidation, lock them up and only spend cash.

See also: 6 Risky Situations When You Should Avoid Using a Debit Card

Con #2: Having Higher Monthly Payments

While monthly payments for a personal loan can be lower than the total of all your minimum credit card payments, they can also be higher. As I previously mentioned, the payment amount depends on how much you borrow, your interest rate, and the loan length.

Unlike a credit card where you can make a minimum payment, with a personal loan you’re required to make the full payment every month. If you pay late, you can destroy your credit.

Con #3: Saving Too Little

If your credit card debt is relatively small or you can pay it off within the next 12 months, using a personal loan to consolidate may not save you enough to be worthwhile.  

When you know that you can pay off a credit card in the near future, but still want to cut the interest, consider using a zero interest balance transfer credit card. The promotional period on these cards can range from 6 to 24 months, giving you a nice break from interest charges.

However, if you don’t pay off the entire balance before the promotion expires you can end up paying more interest than if you hadn’t made the transfer.

See also: When to Use a Balance Transfer Credit Card

Where to Get a Personal Loan to Consolidate Credit Card Debt?

To sum up, a personal loan is a smart financial tool to use if it’s the least expensive option for you to consolidate debt.

While it may seem odd to use new debt to get out of old debt, it all comes down to the interest rate. By using a personal loan the right way you can reduce your interest payments and get out of debt the fastest way possible.

Having less debt will free up more of your money so you can achieve positive financial goals like building your emergency fund, investing in real estate, or saving for retirement.

Here are some of the best places to shop for your personal loan online:

To see my review of 10 online lenders, including loan APR, maximum loan amounts, and type of loan offered (such as personal, student, auto, home, or business) download the free Online Loan Comparison Chart (PDF download).

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.