8 min read
How to Use Personal Loans to Pay Off Your Debt
-
-
Copied link to Clipboard!
Have you been wrestling with multiple credit card balances, medical bills, or other high-interest obligations? Do you wonder if there’s an easier way to get control of your payments? That’s where personal loans to pay off debt come into play. Essentially, you use the funds from a single loan to consolidate debt, leaving you with one monthly payment instead of several.
If you are ready to take control of your finances yet unsure where to start — this guide is for you. We explain the pros, cons, and application steps so you can decide if using a loan to pay off bills makes sense. Let’s dive in.
Lesson Notes:
- Personal loans can combine multiple debts into one manageable payment.
- Their lower interest rates and streamlined payments reduce financial strain.
- Assess your credit score, fees, and repayment ability before borrowing.
- Alternatives: balance transfers, debt management, or home equity options.
LESSON CONTENTS
What is a personal loan and how does it work?
A personal loan is an unsecured loan that you can take out from a bank, credit union, or online lender. Unlike a mortgage or auto loan, it doesn’t require collateral. Therefore, you don’t have to pledge your home or car as security. Instead, financial institutions anchor their lending decision primarily on your credit score, income, and repayment ability.
Once approved, you get a lump sum amount you repay in fixed monthly installments over a set term, often between three and six years. The rate offered varies depending on multiple factors, including your credit history and your chosen lender. When you use personal loans to pay off debt, you consolidate multiple balances into one manageable payment.
Generally, personal loans in Colorado with lower interest rates yield significant savings since a higher proportion of your payment covers the principal. According to the Federal Reserve’s data, average credit card interest rates are hovering around 21% (St Louis Fed, 2025). If you qualify for a personal loan at 10% interest, you could lower your rate, potentially saving hundreds of dollars over time.
Why consider a personal loan to pay off debt?
1. Lower interest rates
With credit card rates currently exceeding 20%, replacing those balances with a personal loan at a reduced rate frees up funds that would otherwise go toward interest.
2. Simplified payments
If you have multiple credit cards, each with different due dates and minimum payments, it’s easy to lose track or miss a payment. A single monthly installment is often easier to manage. Additionally, some lenders let you pick a payment date that aligns with your income dates.
3. Stress reduction
Sometimes, consolidating debts reduces financial stress. You get a clear path and timeframe to pay off your balance.
4. Potential credit boost
When you pay off high-credit-utilization accounts with a personal loan, your credit utilization ratio may drop, positively impacting your credit score over time. However, results vary based on individual situations and overall credit history.
Pros and cons of using personal loans for debt repayment
Before you rush to get a loan to pay off debt, it’s essential to see both sides of the coin.
Pros
- Lower interest costs: You can save significant amounts if your credit score entitles you to a rate lower than your current debts.
- Predictable monthly payment: Fixed rates mean consistent payments, making budgeting easier.
- Streamlined debt management: One payment each month is simpler than juggling multiple bills and can reduce missed payments.
- No collateral needed: Personal loans are typically unsecured, so you won’t risk losing a key asset.
Cons
- Eligibility requirements: You typically need a fair to good credit score of at least 580 (Haughn, 2025).
- Origination fees: Some lenders charge upfront fees ranging from 1% to 8% of the loan amount. This fee is sometimes rolled into your monthly payments but adds to your total cost.
- Potential credit impact: Applying leads to a hard inquiry on your credit report, which can temporarily lower your score.
- Temptation to accumulate more debt: If you pay off your credit cards but keep using them, you risk doubling your debt burden.
Balancing these pros and cons will help assess whether personal loans to pay off debt align with your goals.
Is a personal loan right for you? Questions to ask yourself
One way to determine if consolidation is the right move is to do a quick “gut check.” Here are a few reflection prompts to guide your thinking:
1. What are my current interest rates?
Compare your average credit card APR with the rate you might receive on a personal loan. If you can’t secure a lower rate, a personal loan might not save you money.
2. Do I have a steady income?
Personal loan payments are fixed, which is good for budgeting, but only if you can handle the monthly payment over the next three to six years.
3. Am I prepared to avoid new debt?
After consolidation, you have to commit to not running up new balances. Otherwise, you might end up with your old debts plus a personal loan.
4. Have I explored other options?
There are alternative strategies (discussed later in this article). Weigh the pros and cons of each before signing on the dotted line.
5. What are my overall financial goals?
Are you looking to buy a house soon, start a business, or improve your credit for future opportunities? Consider how a personal loan fits into that broader vision.
Does it make sense to get a loan to pay off debt? After reflecting on these questions, you will have a better idea of the option that’s best for you and your financial situation.
How to apply for a personal loan
Feeling ready to move forward? Let’s break it down into manageable steps so you’re prepared and less stressed:
1. Check your credit score
First, see where you stand by getting a free credit report from major bureaus through AnnualCreditReport.com. A higher score generally translates to better terms.
2. Shop around for lenders
Compare banks, credit unions, and online lenders. Look at their interest rates, terms, fees, and customer reviews. Don’t be afraid to get multiple quotes. Personal finance expert Ben Luthi (2024) notes that “The good news is that many of the best personal loans offer prequalification. This allows you to view and compare rate quotes with a soft credit inquiry, which won't impact your credit score” (para. 15).
3. Gather necessary documents
You’ll typically need proof of income (pay stubs or tax returns), bank account details, and personal identification.
4. Submit a formal application
Once you’ve chosen a lender, fill out an official application. This will likely result in a hard credit inquiry that may marginally lower your score in the short term.
5. Review the loan terms
If approved, examine the fine print carefully — interest rate, monthly payment, loan term, and any additional fees like origination fees or prepayment penalties.
6. Accept the offer and receive funds
After accepting the loan terms, the lender will deposit the personal loan funds into your account within a few business days. Some online lenders even provide same-day or next-day funding.
7. Pay off your existing debts
Utilize the loan proceeds to pay off your existing high-interest credit cards or other bills.
Alternatives to personal loans for paying off debt
Maybe you’re still unsure: “Should I get a loan to pay off credit cards?” It’s a fair question. If you decide a personal loan isn’t right, here are other paths to explore when getting out of debt:
- Balance Transfer Credit Cards: Some offer an introductory 0% APR period. Transferring your balances could save a lot on interest if you pay the balance before the promotional rate ends.
- Debt Management Plans (DMPs): Nonprofit credit counseling agencies can assist in negotiating lower interest rates and consolidating your payments into one monthly amount.
- Debt Snowball or Avalanche Methods: These strategies focus on paying down debts by either starting with the smallest balance first (snowball) or the highest interest rate first (avalanche).
- Home Equity Loans or HELOCs: You could tap into your equity if you own a home. But be cautious — this puts your house at risk if you can’t repay.
Tips to stay debt-free after consolidation
Consolidating debt is only the first step; staying debt-free is an ongoing process. Here are some tips:
1. Create a realistic budget
Track your monthly expenses, allocate funds for essentials — housing, groceries, utilities, transportation — and set aside money for unexpected costs.
2. Build an emergency fund
Start where you can, aiming for three to six months’ worth of expenses.
3. Use credit cards wisely
If you continue to use credit cards, pay off the statement balance each month to avoid charges and keep your credit utilization low.
4. Automate your payments
Set up automatic payments for both your personal loan payment and other bills. This prevents missed due dates and helps you stay on track.
5. Review your progress regularly
Schedule a monthly or quarterly check-in. Assess what’s working and where you might need to adjust your budget or habits.
FAQs
How much can I borrow with a personal loan to pay off debt?
Loan amounts vary widely by lender. Some offer as little as $1,000, while others go up to $100,000 or more. The amount you’re approved for depends on factors like your credit score, income, and debt-to-income ratio.
Will getting a loan to pay off credit cards affect my credit score?
Yes, it may — both positively and negatively. You’ll likely experience a small, temporary dip when you apply (due to the hard inquiry). However, paying off high balances improves your credit utilization ratio, potentially boosting your score.
What’s better — a personal loan or a balance transfer credit card?
It depends on your situation. A transfer card featuring a 0% introductory APR helps you pay off debt interest-free, but only if you pay off the balance during the promotional period. A personal loan offers fixed payments over a longer term and can be easier to manage. Compare interest rates, fees, and your ability to pay down the debt quickly before deciding.
How fast can I get approved for a personal loan?
Approval times vary. Some online lenders approve you within minutes and fund the loan within a day. Others, like traditional banks, may take a few days to a week. Having your documents in order speeds up the process.
What happens if I can’t repay the personal loan?
Missing payments will hurt your credit score. This can lead to your lender initiating legal action to collect the debt. Unlike secured loans, your assets aren’t immediately at risk, but defaulting on an unsecured loan can lead to severe financial and credit consequences. Contact your lender when you anticipate problems; they might offer hardship programs or modified repayment plans.
Citations
St Louis Fed (2025, January 8). Commercial Bank Interest Rate on Credit Card Plans, All Accounts. https://fred.stlouisfed.org/series/TERMCBCCALLNS
Raija Haughn (2025, February 12). Average credit score for personal loans. Bankrate. https://www.bankrate.com/loans/personal-loans/average-credit-score-for-personal-loans/#:~:text=To%20qualify%20for%20a%20personal,score%20of%20740%20and%20above.
Ben Luthi (2024, November 11). How to Get a Personal Loan: A Step-by-Step Guide. https://www.experian.com/blogs/ask-experian/personal-loans-what-to-know-before-you-apply/
*PLEASE NOTE: This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.
Related Resources
View All
10 min read
A Football Fan’s Guide to Budgeting for Game Day
Football, friends, and food are a winning trio, but without a game plan, the bill can tackle your wallet before the first snap. This guide turns tips for creating a budget-friendly game day party into an action-packed playbook so you can savor every touchdown without fumbling your finances.
10 min read
5 Rookie Money Mistakes (And How to Avoid Them)
Have you ever had an unexpected bill wipe out your good intentions, or caught yourself wondering, “What should I do with my money?” You’re not alone. Late-night searches for money advice can leave anyone confused. One blog tells you to skip the lattes, while another pushes a cryptocurrency side hustle. Instead of adding to the noise, this guide breaks down five of the most common money mistakes and, more importantly, how to sidestep them.
12 min read
How to Budget as a College Student
Every semester delivers the same double punch: a tuition bill larger than last term and a flood of incidental costs — textbooks, lab fees, late-night pizzas — that evaporate paychecks and loan disbursements at dizzying speed. The average college student spends $38,270 per year on tuition, books, supplies, and daily living expenses. In a private campus, that bill rises to $58,628 (Hanson, 2025). When numbers grow that large, hoping for the best is not a plan; a written budget is. This guide offers a practical roadmap for how to budget as a college student—from mapping cash flows, choosing tracking tools, and cutting expenses without trimming the joy out of campus life.
5 min read
How to Start Saving Money: Clever & Easy Steps
If you vowed this is the year you get ahead financially only to watch payday deposits disappear, you’re not alone. Gillespie (2025) notes that 59% of Americans still can’t cover a $1,000 emergency without borrowing or selling something. Meanwhile, the U.S. personal-saving rate is languishing below 4 percent—about half its long-term average (BEA, 2025). These sobering numbers explain why learning how to start saving is so critical. The encouraging news? A few clever ways to save money can transform vague intentions into steady progress.
6 min read
How Can I Save Money? Here Are 10 Easy Tips
How can I save money? Picture your money as water flowing through a series of channels. Some streams nourish long-term goals, others evaporate into impulse buys, and a few leak through cracks you never noticed. Redirecting enough of that flow toward the bucket that matters most — savings for emergencies and retirement — guarantees long-term security. Savings protect your future. Yet the typical American household saves just 3.9 % of disposable income as of March 2025, roughly half the pre-pandemic norm (St. Louis Fed, 2025). The good news is that small, deliberate changes can double or triple that rate without feeling like deprivation.
Below, you’ll find proven, beginner-friendly money saving strategies you can start on today. By the end, you’ll have a clear map of ways to save money, from the daily latte decision to bigger moves like automating transfers or picking a side hustle.
10 min read
Summer Vacation Ideas on a Budget
Rising airfares or tight budgets don’t have to cancel summer fun. A thoughtfully planned summer vacation on a budget can restore energy, create memories, and leave room in the checking account for next semester’s textbooks or an unexpected flat tire. Let’s nail down the numbers and map out low-cost destinations and close-to-home adventures. We also outline painless saving tricks and digital tools that track every dollar and make family summer vacation ideas on a budget a practical reality.
10 min read
How to Become Financially Independent
Financial independence (FI) isn’t a distant fantasy reserved for trust-fund heirs or Silicon Valley founders. Instead, it’s a math-driven destination you can plot on a timeline — then march toward with deliberate choices every payday. In plain terms, financial independence means having the freedom and flexibility to make choices that align with your goals - without constantly worrying about money. It’s about feeling secure and confident in your day-to-day life and your future. In the next few minutes, you’ll learn the core habits, sequential steps, and digital tools that turn that definition into reality. By the end, you won’t just understand how to become financially independent; you’ll know which actions to take.
8 min read
Can You Pay Rent with a Credit Card?
Can you pay rent with a credit card? Short answer: yes. Absolutely, but only if your landlord or a third-party processor will take the plastic and you are prepared to shoulder—or cleverly avoid—the fees. Roughly 22% of U.S. renters already put monthly housing costs on debit or credit cards, according to a 2024 payment-trends study by property-tech firm Zego (Salmonsen, 2024). That slice is growing because tenants want smoother cash flow and richer rewards, while landlords crave on-time payments. Still, every swipe passes through a maze of surcharges, interest rates, and utilization limits. Before you tap “Pay,” you need a plan to ensure you have a smart credit card management strategy in place.
10 min read
Is it Wrong to Let Someone Use Your Credit Card?
When someone you trust — a spouse, adult child, sibling, or close friend — asks to use your credit card, the request feels innocent. Maybe it’s for groceries, a plane ticket, or an emergency car repair. But even with the best intentions, lending your credit card can end up with disastrous consequences. So, you might be asking, is it wrong to let someone use my credit card?
The short answer: Yes, it can be wrong — legally, financially, and ethically — depending on the circumstances. Even if you trust the person, the risks often outweigh the convenience. Below, we unpack the hazards, the narrow circumstances when sharing your credit card can work, and safer alternatives that protect you.
8 min read
Improving Your Debt-to-Income Ratio
In Q3 2024, Americans spent 11.3% of their disposable income on household debt payments (St. Louis Fed, 2024). Still, some households suffer massive debts, using over 50% of income to service debt. When your debt payments consume too much of your monthly income, lenders view you as a riskier borrower. This results in unfavorable loan terms, higher interest rates, or loan denials.
Understanding how to improve your debt-to-income ratio helps you qualify for better financing options. In simple terms, your debt-to-income ratio (DTI) computes the percentage of your income that goes toward paying debts each month. In this article, we’ll explain how to compute your DTI ratio, what is a good debt-to-income ratio, the best debt-to-income ratio for various loans and strategies for lowering it.
10 min read
What Is Cash-Out Refinancing?
What is cash-out refinance? It is a mortgage option that lets homeowners replace their existing home loan with a new one and, in the process, convert a portion of their built-up home equity into cash. In other words, if you have substantial equity in your property, you can refinance it for a loan amount that exceeds what you currently owe. The difference between the new loan’s principal and your remaining mortgage balance is then disbursed to you as a lump sum of cash.
A cash-out refinance can be a powerful way to consolidate debt, fund home renovations, or address pressing financial needs. Moreover, mortgage refinance rates are often lower than those of credit cards or unsecured loans. So, how does a cash-out refinance work? Read on for details and the pros and cons.
8 min read
How to Use Personal Loans for Debt Consolidation
You may find yourself overwhelmed by multiple high-interest debts and unsure how to regain control. One way that has helped many people simplify their finances is using personal loans for debt consolidation. This article will provide actionable advice to help you consider whether personal loan debt consolidation might be the solution you need.