Can You Get a Loan to Pay Off Credit Card Debt?

Using a loan to pay off credit card debt is a common financial approach. This strategy involves obtaining a new loan, often with a lower interest rate, to cover existing credit card balances. The goal is to streamline multiple credit card payments into a single, more manageable monthly installment, potentially reducing total interest paid. This simplifies financial management and provides a clear path toward becoming debt-free.

Types of Loans Available

Several types of loans can be used to pay off credit card debt, each with distinct characteristics. Unsecured personal loans are a primary option, as they do not require collateral. These loans are repaid in fixed monthly installments over a set period, often ranging from 24 to 84 months. Interest rates on unsecured personal loans vary significantly, generally falling between 6% and 36% Annual Percentage Rate (APR), influenced by creditworthiness and market conditions.

Secured personal loans require an asset as collateral, such as cash in a savings account, a vehicle, or real estate. Because collateral reduces lender risk, secured loans may offer lower interest rates and larger loan amounts compared to unsecured options. However, defaulting on a secured loan can result in the lender seizing the pledged asset.

Home equity loans and Home Equity Lines of Credit (HELOCs) are options for homeowners with sufficient property equity. A home equity loan provides a lump sum, repaid over a fixed term with a fixed interest rate. HELOCs function like a revolving credit line, allowing borrowers to draw funds as needed up to a certain limit, with typically variable interest rates. As of August 2025, average home equity loan rates range from 8.25% to 8.41% for 5-year to 10-year terms, while HELOC rates average around 8.26%. These rates are often lower than credit cards or unsecured personal loans.

Qualifying for a Loan

Lenders assess several factors to determine loan eligibility, with credit score being a primary consideration. A higher credit score generally indicates lower risk to lenders, leading to more favorable interest rates and terms. While no universal minimum exists, a credit score of at least 610 to 640 is often required for personal loan approval, with scores of 700 or higher typically needed to secure competitive rates.

Income stability and the debt-to-income (DTI) ratio are also important. Lenders assess a borrower’s consistent income stream to ensure new loan payments can be managed. The DTI ratio, which compares monthly debt payments to gross monthly income, indicates financial capacity. Lenders typically prefer a DTI ratio below 36%, though some may approve loans with a DTI up to 43% or even 50% if other financial indicators are strong. A lower DTI suggests a smaller portion of income is allocated to existing debts, making a borrower appear more creditworthy.

A comprehensive credit history, including timely payments and responsible credit usage, also influences a lender’s decision. This history provides insight into a borrower’s past financial behavior. Lenders evaluate these elements to determine the likelihood of loan repayment.

The Loan Application Process

The loan application process begins with researching and comparing different lenders, including banks, credit unions, and online lenders. Once a potential lender is identified, the next step involves gathering necessary documentation. This usually includes proof of identity, such as a driver’s license or passport, and proof of address, often a utility bill or lease agreement.

Applicants must also provide documentation to verify income and employment, such as recent pay stubs, W-2 forms, tax returns, or bank statements. Some lenders may also request an employer’s contact information for verification. After collecting all required documents, the application is completed, often online through the lender’s portal.

Upon submission, the lender reviews the application and supporting documents to assess creditworthiness and eligibility. The timeline for approval can vary, ranging from a few minutes for pre-approved customers to several hours or a few business days. This process involves verifying details, evaluating credit history, and assessing repayment capacity.

Disbursing and Applying Loan Funds

Following loan approval and signing the loan agreement, funds are disbursed to the borrower. The most common method is direct deposit, where the approved loan amount is electronically transferred into the borrower’s designated bank account. In some instances, a lender might issue a check. The time it takes for funds to become available after approval can vary, ranging from a few minutes to several business days, depending on lender policies and processing efficiency.

Once loan funds are received, the next step is to apply them to pay off targeted credit card debts. This involves initiating payments to each credit card company. Most credit card providers offer various payment methods, including online payment portals, phone payments, or mailing a check. The borrower should ensure the full outstanding balance of each credit card account is paid off. Confirm that payments are successfully processed and credit card balances reflect a zero or significantly reduced amount.

Managing Your New Loan

After using the loan to pay off credit card debt, managing the new installment loan is important. Understanding the repayment schedule is a primary responsibility, as it outlines the fixed monthly payment amount and due dates. This schedule is provided in the loan agreement. Borrowers should integrate this new payment into their monthly budget to ensure funds are available.

Setting up automatic payments is a practical step to ensure timely remittances and avoid missed payments. Many lenders offer auto-pay options. Monitoring the loan balance and payment history through the lender’s online portal or statements is advisable.

Make payments on time and, if possible, consider making additional payments toward the principal whenever extra funds are available. This approach can reduce the total interest paid over the loan’s life and shorten the repayment period. Consistent and timely payments on the new loan contribute positively to credit history.