In the last decade, personal loans have become much more common—for small projects, big but not huge purchases, and for debt consolidation.

Taking out a personal loan to pay off high-interest credit card debt may sound like an easy and simple solution, but it shouldn’t be done lightly. Debt repayment is as much about a change in mindset as it is about a change from credit cards to a bank loan.

If you aren’t prepared, taking out a personal loan may just open you up to more spending and more debt. Here’s what you should consider before taking the plunge:

You have a plan to pay off your debt

Before you make a decision, you need to have a plan to pay off your debt. If you simply roll all your credit card balances into one big personal loan without having any idea how you’ll pay that debt off in the next five years, then you might as well not have bothered.

Is the new monthly payment feasible? Or will you find yourself struggling to pay it, and thus end up relying on your newly balance-free credit cards? It pays to be honest with yourself about your own willpower and financial savvy: Lying to yourself about what you can and cannot do will only lead to disappointment and more debt.

Personal loan for debt consolidation is ideal for moderate amounts of consumer debt.

Can you pay off your debt in the next five years? If so, consolidation via a personal loan might make sense.

If you expect to pay off your debt in the next six months to a year, however, then a personal loan probably isn’t worth it. The small amount you’d save in interest isn’t worth the hassle.

On the other hand, if you have no idea how you’ll ever pay off your debt, much less in the next five years, then a personal loan is likely not enough for you. You probably need to seek out credit counseling—a professional who will set your affairs in order.

You’ve got your spending under control

Consolidating your credit card debt with a personal loan doesn’t magically make that debt disappear—it just moves it around. The debt, after all, is the symptom; living beyond your means is the disease. If you know that the only reason you aren’t still charging stuff to your maxed-out credit cards is that they’re maxed out, then a personal loan may be the ultimate enabler—getting you out of your current crunch but doing nothing to stop your excess spending.

If you’ve had a come-to-Jesus moment about your spending, then a personal loan may be a useful way to simplify and streamline your debt repayment. But if you haven’t, it’s just a new way to get more into debt.

Your credit score is high enough to snag low rates

If your debt has done a number on your credit score, then the personal loans available to you may or may not be cheaper than continuing to pay down your credit cards. The FICO score requirements for the best rates at personal loan lenders can be steep. You might need a credit score over 760 to start seeing the lowest, single-digit interest rates.

If you’ve got high balances but always pay at least the minimum on time, then your credit score is probably high enough to get a lower rate than your credit cards. But if you’ve missed payments regularly, it probably makes a personal loan nothing more than a lateral move in terms of your monthly interest payments. Fortunately, some personal loan lenders like Credible let you check your interest rate before you apply and without hurting your credit with.

Plus, Money Under 30 readers who refinance their student loans with Credible can get a $100 bonus!

Even if you can’t beat your existing interest rate by consolidating debt with a personal loan, there may be an advantage: With a personal loan, you’ll need to make a fixed monthly payment that will have your loan paid off by the end of the term (usually three or five years). This makes it impossible for you to get stuck in the trap of making minimum payments all the time.

Find the best personal loan offers that fit your needs:

You don’t have access to 0-percent APR credit card offers

A lower rate is always good, but no interest at all is better. If you can pay off your debt in one or two years and have excellent credit, a balance-transfer credit card, like the BankAmericard® credit card might make more sense. The key, however, is having a plan to pay off debt. If you don’t have your route out of debt mapped out, then the individual moves you make might lead you way off track.


Personal loans are good for people with moderate (but not severe) debt loads and a good credit score who are looking to simplify (or accelerate) their debt repayment.

Personal loans will not solve spending problems, however, and they should not be pursued unless the borrower has already made serious steps toward cutting their spending and living within their means.

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