Can I Get a Loan to Pay Off Credit Cards?

Using a loan to pay off existing credit card debt is a common financial strategy. This approach, often referred to as debt consolidation, can simplify a borrower’s financial obligations by combining multiple credit card balances into a single, more manageable monthly payment. The goal is frequently to secure a lower interest rate, which can reduce the overall cost of borrowing and potentially shorten the repayment period.

Types of Loans for Credit Card Debt

A common option is an unsecured personal loan, which does not require collateral. These loans typically come with fixed interest rates and a set monthly payment schedule. The repayment period for personal loans can range from two to seven years, providing predictability in budgeting.

Another avenue is a home equity loan or a home equity line of credit (HELOC). A home equity loan provides a lump sum, using the borrower’s home equity as collateral. A HELOC functions more like a revolving credit line, allowing borrowers to draw funds as needed up to a certain limit. These secured loans put the borrower’s home at risk if payments are not met, potentially leading to foreclosure. Home equity options often offer lower interest rates compared to unsecured loans because of the collateral involved.

Unsecured personal loans carry a higher interest rate due to the absence of collateral, reflecting the increased risk to the lender. Secured home equity products generally have lower rates but introduce the risk of losing the asset. The choice between them depends on an individual’s comfort with risk and their financial circumstances.

What Lenders Evaluate

Lenders primarily consider the applicant’s credit score, which indicates debt management history. Higher scores, typically above 580, often lead to more favorable interest rates and higher approval likelihood, with 700s generally securing the best terms.

Lenders also examine an applicant’s debt-to-income (DTI) ratio, the percentage of gross monthly income going towards debt payments. This ratio helps determine if a borrower can comfortably take on additional debt; a DTI ratio below 36% is generally considered favorable, though some lenders may approve higher, up to 45-50% for certain loans. Steady income and employment history demonstrate repayment capacity. Lenders typically look for at least two years of stable employment, though shorter periods may be accepted with strong compensating factors.

Lenders thoroughly review credit history, focusing on consistent on-time payments and absence of recent delinquencies or bankruptcies. Few recent credit inquiries suggest a borrower is not excessively seeking new credit. For secured loans, the collateral’s value and borrower’s equity are critical evaluation points.

The Application and Repayment Process

Applicants should gather essential documents, including personal identification, proof of address, and income verification like pay stubs or tax returns. Understand current credit card balances and their associated interest rates to accurately determine the required loan amount.

The application can typically be submitted online, in person at a bank or credit union, or through a loan broker. After submission, some lenders provide instant decisions, while others require a few business days for review. During this period, lenders may request additional documentation or clarification.

Once approved, loan funds are commonly disbursed directly to the borrower’s bank account. The borrower then uses these funds to pay off the credit card balances. Some lenders may offer to pay off the credit card companies directly, simplifying the process. Repayment of the consolidation loan begins on a fixed schedule, with consistent monthly payments over a predetermined term, ensuring predictable budgeting.

Evaluating a Loan Offer

Carefully evaluate any loan offer to ensure it aligns with your financial goals. The interest rate and Annual Percentage Rate (APR) are primary factors; the APR includes the interest rate plus any loan fees, providing a comprehensive cost. Comparing this APR to the current weighted average interest rate on existing credit cards is crucial, aiming for a significantly lower rate to achieve savings. The average credit card interest rate for accounts assessed interest was approximately 22.25% in Q2 2025, while new offers averaged 24.35%.

Loan fees, such as origination fees, impact the total loan cost. Origination fees for personal loans typically range from 1% to 10% of the loan amount, often deducted from disbursed funds. For home equity loans, closing costs, including appraisal fees and title insurance, usually range from 2% to 5% of the loan amount. These fees should be factored into the overall cost calculation.

The loan term, or repayment period, also plays a significant role. A shorter term generally results in higher monthly payments but less total interest paid over the life of the loan. Conversely, a longer term offers lower monthly payments but increases the total interest expense. It is important to ensure the proposed monthly payment is affordable within the borrower’s budget.

Taking out a new loan and subsequently paying off credit card debt can initially impact a credit score due to the new inquiry, but consistent on-time payments on the new loan and reduced credit utilization can positively influence the score over time. Calculating the total cost of the loan, including principal, interest, and fees, and comparing it to the total cost of continuing to pay credit card debt at current rates is the final step to determine if the loan offer is financially advantageous.