Disadvantages of paying off credit cards with a personal loan

While there are some clear advantages to using a personal home equity loan to consolidate credit card debt, there are also some potential disadvantages to consider.

You could end up with more debt

One of the biggest risks with using a personal loan for debt consolidation is the temptation to use your cards for more spending. If you use a personal loan to pay off credit card balances, then running those balances again all you’ve done is add to your debt pile. And you can hurt your credit score in the process if your credit utilization goes up.

Fees may apply

While many lenders offer no-fee personal loans, not all do. You can pay a personal loan fee, for example.

Reading the fine print on personal loans can help you avoid any hidden or sneaky fees.

Savings are not guaranteed

Although personal loan interest rates tend to be lower than credit interest rates, it is not always guaranteed that you will save money. If you have a fair or bad credit score, then the personal loan interest rate you are approved for may not be that different from the APR you pay on your credit cards.

In this case, debt consolidation with a personal loan may not save you much, if anything.

How to use a personal loan to pay off credit card debt

If you think taking out a personal loan to pay off your credit cards is the right move, it helps to have a game plan.

Choose the right loan . The first step to consolidating credit cards with a personal loan is finding the best loan option. Shop and compare loan fees, interest rates, repayment terms and qualification requirements from different lenders.
Use the loan funds to pay off the debt . It may be tempting to spend that lump sum, but remember your goal: paying off credit card debt. Once the loan proceeds clear your bank account, schedule payments on your cards to pay them off.
Don’t add to your debt . Once your credit card balances are at zero , consider putting them aside so you’re less likely to use them to make new purchases. If you’ve saved your card information online at your favorite stores or in a mobile wallet app, you may want to delete that information. This way, you can pay cash for purchases instead of credit.
Pay off your loan early if possible . Paying off a personal loan early can save you money on interest and get you out of debt faster. Switching to bi-weekly payments, for example, could cut some payments off the loan term.

If you want to pay off your loan early, be sure to check first if you will be charged a prepayment penalty.