As the cost of living continues to increase, you may be turning to means other than your income to get by. In the first quarter of 2024, credit card debt grew to $1.115 trillion, according to the Federal Reserve, while delinquency rates were also on the rise. If you're relying on credit cards to pay the bills, you're not alone.
However, if your payments are becoming unmanageable, you may be able to turn to a personal loan for help. It might sound odd to trade one form of debt for another, but using a loan to refinance credit card debt could save you hundreds or thousands of dollars in interest and improve your credit score.
When you refinance credit card debt, your balances are paid off with a new debt, ideally with a lower APR and a lower monthly payment.
You can use different types of debt to pay off your credit cards, including a home equity loan, a credit card balance transfer, and a personal loan for debt consolidation. In all scenarios, you would apply for the new debt (or use a 0% APR balance transfer offer on an existing card). Once approved, you'd pay off your credit cards with the money from the loan. Then, you'd make monthly payments on the new loan until it's paid off.
Good to know
Credit cards can have annual percentage rates (APRs) upwards of 30%. The APR indicates how much it costs to borrow money, which impacts how much you pay monthly.
In addition to reducing monthly payments and interest rate, and/or speeding debt payoff, refinancing credit card debt with a personal loan or home equity loan can quickly boost your credit score. This is because with your cards paid off, your credit utilization (a factor in the "amounts owed" portion of your credit score) could drop significantly - and credit utilization contributes up to 30% of your score.
Pros
- Improve your credit score
- Simplify and lock in payments
Cons
- Interest rates aren't always lower
- Personal loans often come with fees
- Personal loans can lead to more debt
For borrowers with good credit (a FICO score between 670-739), personal loans tend to have lower interest rates than credit cards. According to Federal Reserve data, as of February 2024, credit cards charged an average 21.59% interest rate, while a 24-month personal loan had an average rate of 12.49%. Plus, some personal loans can be funded as soon as the same day you apply.
Additionally some lenders will give you a rate discount, such as 0.25 percentage points, if you ask them to send the money directly to your creditors.
Thirty percent of your FICO credit score is calculated by determining how much you owe, which includes how much of your available credit you're using on credit cards
(credit utilization). If you can reduce your credit utilization to below at least 30%, it can significantly improve your score. But the lower the better.
Tip
Credit utilization is determined by adding up the amount you owe on your cards and any lines of credit, and dividing that by the total of all your credit limits on those cards and lines of credit.
But credit mix is also taken into account, and makes up 10% of your FICO score. Adding a personal loan to the mix could be a good thing in the eyes of credit-scoring companies like FICO, especially if you don't have any other installment loans. However, it doesn't mean that opening a lot of new credit lines will be good for your credit score - that's likely to have the opposite effect.
If you're carrying multiple credit card balances, refinancing them with a personal loan could reduce the number of payments you make per month to one. Additionally, most credit cards have variable interest rates, meaning they could increase.
Personal loans, however, generally have fixed interest rates, meaning the rate won't change over the life of your loan. These factors create a fixed monthly payment that you can easily budget for.
While personal loans have lower interest rates than credit cards on average, that's not true in every case. If you have poor credit (a FICO score below 580), you may be looking at rates as high as 36%. However, there are lenders who tailor to those with bad credit, so It's wise to prequalify with various lenders so you can determine whether getting a personal loan would save you money.
Prequalification involves a soft credit check which doesn't impact your score, but is not an offer of credit, and the rates may vary once you actually apply. Additionally, a hard credit check will be conducted which can ding your score temporarily.
While you might be able to qualify for a personal loan with no fee, many lenders attach an origination fee to their loans up to 12%. This amount is usually taken out of your principal borrowing amount.
For example, let's say you have $10,000 in credit card debt and you take out a $10,000 personal loan with a 5% origination fee. When the lender disburses the funds, you'll receive $9,500 instead of $10,000.
Important
It’s particularly important to know whether a lender charges an origination fee if you’re consolidating debt, since you may need to increase the amount you borrow to compensate for the deduction.
If you have a significant amount of credit card debt, you'll want to make sure that you don't get yourself back into this situation again. If you use a personal loan to pay off your credit card but don't change your credit card usage, you could end up with two piles of debt instead of one.
Tip
Make a realistic budget to follow each month. Calculate your income and expenses and adjust as needed to avoid falling back into debt.
Advertiser DisclosureFox Money rating
Fixed (APR)
7.80% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
Overview
Upstart has one of the lowest available APRs of Credible partner lenders and of all non-partners we reviewed, making it a good choice for well-qualified applicants. However, it's also is one of few lenders that doesn't have a minimum credit score requirement (if you apply on the lender's website), which makes it an option if you have bad credit or no credit history. Upstart may charge an origination fee as high as 12%, but good-credit borrowers may not be charged one at all.
Trustpilot gives Upstart 4.9 stars, which is the highest of all lenders we reviewed.
Loan amount
$1,000 to $50,000
Fees
Origination fee
Eligibility
Available nationwide
Min. income
Customer service
Phone, email
Soft credit check
Time to get funds
As soon as 1 to 3 business days
Loan uses
Pay off credit cards, consolidate debt, relocate, make a large purchase, and other purposes
Fox Money rating
Fixed (APR)
7.99% - 24.99%
Loan Amounts
$2500 to $40000
Min. Credit Score
Overview
Discover Personal Loans offers low APRs, repayment terms up to seven years, no origination fees, nationwide availability, and doesn't require your Social Security number to prequalify on its site. You'll need to have an annual income of at least $40,000, and a FICO score 660 or higher, to be eligible. If your credit score is fair or poor, you'll need to go elsewhere, as Discover doesn't allow cosigners.
Funds are available as soon as the next business day after loan approval.
Loan amount
$2,500 - $40,000
Repayment terms
3 - 7 years
Eligibility
Available in all 50 states
Min. income
Customer service
Soft credit check
Time to get funds
Funds can be sent as soon as the next business day after acceptance
Loan uses
Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Fox Money rating
Fixed (APR)
8.98% - 35.99%
Loan Amounts
$1000 to $40000
Min. Credit Score
Overview
LendingClub is a solid lender for good credit borrowers and some fair credit borrowers that apply directly on its website. It's easy to prequalify with LendingClub, especially if you're uncomfortable providing your Social Security number, as the company doesn't require it at the prequalification stage. (You will need to provide it if you move forward with a full application.)
While prequalification is not a guarantee that you'll be approved for a loan, LendingClub does a better job than most other Credible partner lenders at approving applicants that have successfully prequalified. In other words, you're less likely to have your application declined once you apply (if you've already prequalified). LendingClub may charge an origination fee between 3% and 8%.
Loan amount
$1,000 to $40,000
Fees
Origination fee
Eligibility
Available in all 50 states
Min. income
Customer service
Phone, email
Soft credit check
Time to get funds
Within 3 days
Loan uses
Debt consolidation, paying off credit cards
Fox Money rating
Fixed (APR)
8.99% - 29.99%1
Loan Amounts
$5000 to $100000
Min. Credit Score
Does not disclose
Overview
SoFi stands out for offering no-fee personal loans with competitive rates, high loan amounts, long loan terms, discounts for autopay and direct pay, and funding as soon as the same day. Plus, SoFi prioritizes convenience for existing and potential customers with features like live chat and an easy prequalification process that doesn't require your Social Security number.
The main catch is that you need to qualify for a loan with SoFi, which can be hard to do if you don't have good credit. You also won't be able to apply with a cosigner, since SoFi doesn't accept cosigners; nor does it offer secured personal loans.
Loan Amount
$5,000 to $100,000
Repayment terms
2 - 7 years
Fees
Option to pay an origination fee in exchange for a lower rate
Discounts
Autopay, direct pay
Eligibility
Available in all states
Min. income
Does not disclose
Customer service
Phone, email, live chat
Soft credit check
Time to get funds
Typically within a few days, given approval and bank account verification, but sometimes within the same day
Loan uses
Solely for personal, family, or household uses
Fox Money rating
Fixed (APR)
8.99% - 35.99%
Loan Amounts
$2000 to $50000
Min. Credit Score
Overview
Best Egg is a solid lender for a wide range of borrowers and, notably, scored second for personal loan satisfaction in J.D. Power's Consumer Lending Study. It offers competitive rates, reasonable loan terms and amounts, and personal loans for fair credit. You'll need a FICO score of at least 600 to qualify, but the lower your score, the higher your APR may be. The APR includes the interest rate and origination fees, which range from 0.99% to 9.99% with Best Egg.
Note that if you successfully prequalify with Best Egg, you may be more likely to be approved for the loan relative to other lenders you prequalify with. Based on Credible data, borrowers who chose to apply for a loan with Best Egg were more than twice as likely to be approved (relative to most other Credible partners).
Loan amount
$2,000 to $50,000
Fees
Origination fee, late fee, unsuccessful payment fee, check processing fee
Eligibility
Available in all states except DC, IA, VT, and WV
Min. income
Customer service
Phone, email
Soft credit check
Time to get funds
As soon as 1 to 3 business days after successful verification
Loan uses
Credit card refinancing, debt consolidation, home improvement, and other purposes
Fox Money rating
Fixed (APR)
9.99% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
Overview
Upgrade has a suite of features that make it a very attractive lender: competitive interest rates, discounts for direct pay and autopay, as soon as same-day funding, up to seven-year repayment terms, and nationwide availability. Plus, loans are available to fair-credit borrowers, and you don't need to input your Social Security number to prequalify on the website. Upgrade even offers secured personal loans, which is not common among lenders.
However, Upgrade does charge an origination fee of 1.85% to 9.99%. You must have a FICO score of at least 600 and a minimum income of $25,000 annually to qualify.
Loan amount
$1,000 to $50,000 ($3,005 minimum in GA; $6,600 minimum in MA)
Repayment terms
2 to 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
Available in all states
Min. income
Does not disclose
Customer service
Soft credit check
Time to get funds
1 business day
Loan uses
Credit card refinancing, debt consolidation, home improvement, major purchase, other
Fox Money rating
Fixed (APR)
11.69% - 35.99%
Loan Amounts
$1000 to $50000
Min. Credit Score
Overview
Universal Credit is one of a handful of lenders that offers personal loans for bad credit. If your FICO credit score is at least 560, you may be eligible for a Universal Credit personal loan. It offers loan amounts up to $50,000, repayment terms up to seven years, and discounts for direct pay and autopay. Funds are available as soon as the next business day after loan approval.
Note that rates and fees can be relatively high — you may pay an origination fee from 5.25% to 9.99%, and APRs start at 11.69%. If you get a loan with a high interest rate, consider refinancing your personal loan at a lower rate once you've improved your credit score.
Loan amount
$1,000 - $50,000
Repayment terms
3, 5, or 7 years
Fees
Origination fee
Discounts
Autopay and direct pay
Eligibility
A U.S. citizen or permanent resident; not available in DC, IA, SC, WV
Min. income
Customer service
Phone, email
Soft credit check
Time to get funds
As soon as 1 business day after acceptance
Loan uses
Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases
Fox Money rating
Fixed (APR)
11.72% - 17.99%
Loan Amounts
$5000 to $40000
Min. Credit Score
Overview
Happy Money has been in operation since 2009 (formerly known as Payoff). It's an option for fair-credit borrowers (plus those with better credit), and notably has a relatively low top-end APR. In other words, you could qualify for a lower rate with Happy Money with fair credit, relative to other lenders that offer fair-credit loans. The company does charge an origination fee on some loans, up to 5%, but that's not as high as some other lenders' origination fees.
You should be prepared to wait a few days to get your money, as funding can take three to five days once approved. And loans aren't available in Massachusetts or Nevada. Happy Money has an A+ rating with the BBB and is ideal for debt consolidation and credit card consolidation loans.
Loan amount
$3,000 to $40,000
Fees
Origination fee
Eligibility
Available in all states except MA, MS, NV, and OH
Min. income
Customer service
Phone, email, chat
Soft credit check
Time to get funds
As soon as 2 - 5 business days after verification
Loan uses
Debt consolidation and credit card consolidation only
Fox Business does not make or arrange loans.
If you can qualify for a credit card with a 0% promotional interest rate for balance transfers, you may be able to transfer your existing high-interest credit card balance to that card and save money. There are some cards, like Citi Simplicity, that offer a 21 month 0% APR period.
However, balance transfers are most beneficial when you can pay off the balance before the 0% introductory rate period ends. Additionally, most cards charge a fee for a balance transfer (around 3% to 5%), so factor that surcharge into the cost or savings of this strategy.
If you have balances on multiple credit cards, you may be able to utilize the debt snowball or avalanche method.
The debt snowball method is putting any extra money you have toward your lowest outstanding balance. For example, if you have one credit card with a $1,000 balance and one credit card with a $2,000 balance, make the minimum payment on the $2,000 balance and pump all the money you can toward the $1,000 balance. Once you pay off the $1,000 balance, you can now start putting that extra money toward the other card.
In the debt avalanche method, you put any extra money you have toward the debt with the highest interest rate. Let's say you still have the credit card balances from the above example, but the $2,000 balance has a 34.99% APR, while the $1,000 balance has a 19.00% APR. Using the avalanche method, you would make the minimum payment on the $1,000 balance and put as much as possible toward the $2,000 balance with the higher interest rate.
The avalanche method will save you money on interest, but the snowball strategy can help you feel motivated and gain momentum in your quest to pay off credit card debt. Decide which resonates with you and motivates you the most toward a faster payoff.
It might sound obvious, but making more money is one of the best ways to pay off your credit card debt faster. While finding a higher-paying job is ideal, earning more money with a second job might be an easier-to-achieve solution in the short term.
Consider freelance work, part-time work, or a job in the gig economy. Whichever you choose, factor taxes, maintenance or supply costs, and other expenses into your budget, as many second jobs can carry these kinds of costs.
Making an extra $100 every week or every month can help you pay off your credit card debt that much faster. If you decide to go this route, make sure you're taking all the money from that side gig, subtracting taxes and expenses (if it's not done automatically), and making extra payments toward your debt.
If you own a home with equity, you may be able to tap as much as 80% of that equity to pay off credit cards. Like using a personal loan, you would use the proceeds to pay off your credit cards, then make payments on the home equity loan instead. Home equity loans are secured installment loans, so your home acts as collateral. If you fail to make payments and default, your house could be foreclosed.
Secured loans generally come with lower rates and longer repayment terms, typically up to 30 years. However, home equity loans can also take a month or more to get approved, and can have closing costs over 2%.
If you can qualify for a loan with a lower interest rate than your credit card and avoid fees - and you're confident you can resist the temptation to run up another big credit card bill - refinancing can be a smart call. A good credit score is a big factor in getting low interest rates and fees, so if your FICO score is 670 or higher, you are likely in a better position to consolidate your credit card debt with a personal loan or other loan.
This isn't a part of the actual application process, but it's one of the first things lenders will do once they get your application. Credit scores are a large part of whether you qualify for a loan, what interest rate you're offered, and what fees you're charged.
You can get free credit reports from the three credit bureaus at AnnualCreditReport.com. If you see any errors weighing down your score, report them to the appropriate credit bureau (Experian, Equifax, or TransUnion).
Before you make any moves, compare lenders carefully. You can usually prequalify for a personal loan with a soft credit check that won't impact your credit score. Do this with several companies and compare the interest rates, origination fees, loan terms, and other information before you make a choice. Keep in mind that prequalification is not an offer of credit, and your final rate could be higher.
When you're choosing the best option, interest rates and fees aren't the only thing to consider. The loan term is also important - a longer term generally means lower payments but a higher amount of total interest paid, while a shorter loan term means the reverse. Make sure that you fully understand any extra costs that might impact you, such as late fees or prepayment fees. And do the math to ensure you can cover the monthly payments without struggling.
The formal application will likely require proof of identity, proof of address, proof of employment and income, and your Social Security number. Lenders may also run a hard credit check which can temporarily ding your credit score.
Once you're approved and sign the final paperwork, your loan funds will be disbursed, likely via direct deposit into your bank account. Some companies may offer to pay off your debt directly to your creditors, so check with your lender. If you receive the funds, you'll then pay off your credit card or cards and start making monthly payments to your personal loan company. Make sure to add the new due date and payment amount to your monthly budget.
Good to know
Some lenders offer discounts if paying off creditors directly.
Learn More: How to Get a Personal Loan
You can find personal loans through banks, credit unions, and online lenders. Most lenders let you prequalify so you can get an idea of the type of rate you may receive. Prequalification is not an offer of credit and your rate may change once you apply. Additionally, if you have poor credit, look for lenders who cater to those with FICO scores below 580. For example, OneMain Financial doesn't have a minimum credit score requirement.
You can use another payment method, like a personal loan, home equity loan, or credit card balance transfer, to consolidate your credit card balances into one account with one payment. Look for a loan with a lower interest rate than what you currently owe on your cards, and make a point to not run up the balances on your cards once you pay them off with the new loan.
Meet the contributor:Hilary Collins
Hilary Collins is a finance writer and editor. She loves taking topics that could be dry and complicated and turning them into engaging stories with actionable takeaways.
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