person opening an empty wallet with credit cards in the background
Derek Tallent
By: dtallent
Read in 16 minutes

Using A Loan To Pay Off Credit Cards: The Ultimate Guide

You can use a loan to pay off credit cards because they typically have lower rates than credit cards. That means you’ll save money on interest charges, and you’ll be able to pay off your debt more quickly.

If you’re like most Americans, this will be good news because you probably have some form of credit card debt.

In fact, according to a report by the Experian Consumer Credit Review, the average American household has over $6,194 in credit card debt.

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Can I Use A Loan To Pay Off Credit Cards?

Yes, you can use a loan to pay your outstanding credit card balances.

The idea behind using a loan to pay off credit card debt is that it can potentially save you money in the long run.

This is because loans typically have lower interest rates than credit cards.

Using Personal Loans

A personal loan can be an excellent option to consolidate your credit card debt and lower your monthly payments.

Using a personal loan to pay for business credit card debt is possible, but it’s not the best idea to mix business and personal finances.

Using Business Loans

You need to make sure you can use the business microloan to consolidate debt, though. And you would only be able to pay for business credit card debt.

Using a commercial loan to pay off personal debts is out of the question.

#CaminoTip
You shouldn’t use personal loans instead of business loans for commercial purposes.

When Should You Use A Loan To Consolidate Credit Card Debt?

There are a few key reasons why it makes sense to use a personal loan to consolidate your credit card debt.

First, loans typically have lower interest rates than credit cards. This means you’ll save on interest charges by consolidating your debt into a personal loan.

Second, loans offer fixed interest rates, which means your monthly payments will stay the same over the life of the loan. This can make budgeting and planning for your payments much easier.

Third, loans typically have shorter repayment terms than credit cards. This means you’ll be debt-free and pay off your debt sooner.

Finally, by consolidating your credit card debt into a personal loan, you’ll be able to focus on making one payment instead of multiple credit card payments. This can make getting out of debt much simpler and less stressful.

However, if you only have a small credit card debt, it may not make sense to take out a loan to pay it off. In this case, you might be better off working on a budget, increasing your income to pay off your debt more quickly.

If you’re unsure what to do, you should talk to a financial advisor who can help you figure out the best way to deal with your debt.

If you need a loan for debt refinancing, Camino Financial is an amazing alternative.

Our loans are easy to apply for, and our terms are very competitive. In addition, the loan application process won’t affect your credit score.

Our microloans range from $5,100 to $35,000, and they can help you get out of debt or strengthen your business by making savvy investments.

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How To Use A Loan To Consolidate Credit Card Debt

Therefore, by taking out a loan to consolidate debt, you may reduce the interest you’re paying overall.

Here’s how to get a loan to pay off credit cards and use them:

  1. First, you’ll need to find a personal loan that fits your needs. There are plenty of options, so be sure to compare interest rates, terms, and fees before applying for a loan.
  2. Once you’ve found the right loan, apply.
  3. If you receive approval, use the money from the loan to pay off your credit card debt.
  4. Then, you’ll make monthly payments on the loan until you pay it off.

You need to know a few important things about using a personal loan to pay off credit card debt.

  • First, remember that your goal is to get out of debt – so be sure to choose a loan with terms that fit your budget and timeline.
  • Second, keep in mind that you’ll need to make monthly payments on the loan – so be sure to set up a budget and make those payments on time.
  • Finally, remember that you’re not alone – there are plenty of resources to help you get out of debt and stay out of debt.

Pros and Cons Of Using A Loan To Pay Off Credit Card Debt

The best debt consolidation loans have their fair share of pros and cons:

Advantages

Pay Off Debt Faster

Depending on how much you owe, paying off your debt might take a long time, especially if you only make the minimum payment. A business loan might allow you to pay off debt faster if it has lower repayment terms.

Easier To Keep Track of Debts

If you have multiple loans and credit cards, it can be a pain to track how much you owe and when on each one. A loan means you will only have to make one monthly payment.

Lower Interest Rates

Loans typically have much lower interest rates than credit cards. This will obviously save you money in the long run.

New Payment Terms

If you are struggling with debt payments currently, it can be a lifesaver to have a new set of terms. In addition, you can have a longer payment term, so your monthly payments are much lower.

Saves You Money

This is the main benefit of a credit card consolidation loan. If you are smart, you can get a loan with lower rates and payments, so you will have more cash reserves on hand to use.

Could Help Improve Your Credit Score

Using a loan to pay off credit cards can help you in 2 ways:

  1. First, you’ll be able to repay your debts, which lowers your credit utilization ratio. And this, in turn, can help boost your credit score.
  2. One of the main factors of a credit score is the credit mix, which is the different types of credit and debt you carry. Your credit mix will strengthen your score if you get a new type of debt.

It’s important to know that not all lenders report timely payments to credit bureaus. This means that not all loans will help you build your business credit.

Disadvantages

So, what’s not so good about consolidating credit card debt with a loan?

Very Credit Score Dependent

To get a loan with good terms, you will need a high credit score. However, if you have already missed many credit card payments, you might have a low credit score.

You Can No Longer Use The Credit Card

Debt consolidation only works if you stop getting any more debt. This means you need to stop using your credit card.

Collateral Required

A loan might require collateral that the lender can liquidate for cash quickly. This can be bonds, cash reserves, a business vehicle, your house, etc. If you cannot repay the loan, the lender will seize the collateral.

#DidYouKnow
You can use Camino Financial’s microloans for debt consolidation. The best part is that we don’t require any collateral.

How To Choose The Best Loan

There are many factors to consider when choosing the best loan for your needs. Here are a few of the most important things to keep in mind:

  1. Interest Rate. You’ll want to find a loan with the possible lowest interest rate or APR so you can save money.
  2. Loan Term. The loan term is the time you have to repay the loan. Shorter loan terms typically have lower interests but higher payments.
  3. Loan amount. Larger loans typically have a higher rate, so you may want to consider a smaller loan if you can’t afford the increased payments.
  4. Credit Score. You’ll likely qualify for lower interests if you have a good credit score.
  5. Collateral. Some loans require collateral, such as a home or car. You may have to pay a higher interest rate if you don’t have any collateral.

#CaminoTip
Make sure to also review if the lender charges late payment and origination fees.

Credit Card Debt vs. Loan Debt

Credit cards and short-term business loans can become significant financial burdens, but there are some critical differences between the two.

Credit card debt is one of the most common types of debt Americans carry. A credit card is a revolving line of credit, which means you can continue to borrow money as long as you make your minimum payments.

A loan is a fixed-term debt, which means that you borrowed a set amount of money you need to repay over a set period.

In short:

  • Credit card rates are usually much higher than loan rates, making credit card debt more expensive to carry.
  • Loans often come with terms of two to five years, while credit card debt has no set repayment timeline.

How Often Should You Use Loans to Pay Off Credit Card Debt?

Generally speaking, you can use a loan to consolidate debt as often as you need to.

There are no hard and fast rules about this, and it ultimately comes down to your financial situation.

But if you’re in constant debt, there might be an underlying issue.

It could be that you’re not bringing in enough income to cover your expenses. Or maybe you’re not good at managing your money and need to work on developing a budget.

Whatever the case may be, it’s essential to get to the root of the problem so you can break the cycle of debt. Otherwise, you’ll just keep going around in circles, borrowing money to pay off debt, and never getting ahead.

If you’re struggling with debt, many resources can help, including credit counseling services. These organizations can provide guidance and support as you work to get your finances back on track.

What Happens If You Can’t Pay Off Your Credit Cards?

Missing credit card payments will have consequences that will ramp up as you miss more and more payments.

Even missing one payment can significantly impact your credit score. You also may have to pay late fees and deal with increasing interests.

If you continually miss payments, the issuer may freeze your credit card. In this case, they might sell your debt to a collection agency, which may sue you and require you to garnish wages, tax returns, and other sources of income.

Other Debt Consolidation Options

If you know you are going to miss payments and you can’t apply for capital to pay off your credit cards, there are some other alternatives:

Call Your Lender

It is almost always a good idea to contact the credit card issuers and let them know you may not be able to make a payment.

Most of the time, they will work with you and either delay the payment for a small fee, renegotiate a lower interest rate, or allow a partial payment.

They don’t have to do any of these, obviously, but it typically is in their best interest to work with you, so you don’t default on the loan and lose them a lot of money.

Debt Management Plan

Debt settlement is where you offer to settle the loan for less money, which kills your credit score and takes 2-3 years.

On the other hand, debt management is where firms negotiate with your lender on your behalf to reduce your loan and come up with an affordable payment plan to pay off your debt in 3-5 years.

While these services cost money, it can be helpful to have an expert negotiate on your behalf because they will know what is realistic to ask for and how to haggle enough to get you a good plan.

They also can provide credit counseling on saving money and making payments.

Snowball And Avalanche Methods

One way to get out of debt is to use the debt snowball method, where you focus on paying off your smallest debts first. Then, you move on to your next smallest debt, and so on.

With the avalanche method, you focus on first paying off debts with the highest rates. The theory behind this method is that you will save more money in the long run by paying off your high-interest debt first.

Balance Transfer Credit Card

A balance transfer credit card is a financial product that allows cardholders to transfer the balance of one credit card to another.

This can be useful for cardholders struggling to make payments on their current credit card or who want to take advantage of a lower interest rate.

Most balance transfer credit cards have a promotional period, during which the interest rate on the transferred balance is 0%. After the promotional period ends, the interest rate will revert to the standard rate.

#CaminoTip
Make sure to ask if there is a balance transfer fee (usually a percentage of the amount transferred).

Home Equity Loan

Home equity loans use the value of your home as collateral. The loan amount is typically based on the equity in the house, which is the difference between the home’s appraised value and any outstanding mortgage balances.

Home equity loans typically have lower interests and offer more significant amounts than other types of loans, making them a popular choice for borrowers.

Camino Financial: The Best Loans To Pay Off Credit Card Debt

Hopefully, you never find yourself with too much credit card debt, but at least you will know what to do.

At Camino Financial, we always strive to fulfill our motto: “No Business Left Behind,” and a big part is offering the best financial products to help our clients.

You can use a Camino Financial microloan to pay off business credit card debt. We offer a straightforward application, longer repayment terms, and transparent pricing.

Many of our members have used our business loans to pay off credit card debt. You can do the same and refinance your debts with our help.

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FAQs

How much credit card debt is normal?

Some experts recommend keeping your credit card debt at 30% or less of your total credit limit. So, if your credit limit is $3,000, you should keep your balance at $900 or less.

Others suggest you keep it even lower, at 10% of your credit limit. So, in this case, you would keep your balance at $300 or less.

How do you avoid credit card debt?

It’s not uncommon to carry a balance from month to month, especially if you’re using your credit card for everyday purchases. But debt can quickly get out of control if you’re not careful.

Here are some tips to help you avoid too much debt:

  • Pay your balance in full each month.
  • Don’t use your credit card for impulse purchases.
  • Create a budget and stick to it.
  • Talk to a financial advisor if you’re having trouble managing your debt.

Can I use a small business loan to pay a personal debt?

Unfortunately, you can’t. You can only use a business loan for business purposes. What you’re looking for are personal loans.

Is there a debt consolidation loan for bad credit?

Getting a new loan might not be as easy if your credit score is really poor. For example, you might only be able to get a secured loan (that requires collateral) or one that only offers minimum loan amounts.

Getting unsecured loans is not impossible, though. If you have a bad credit score, you might find some lenders willing to work with you and offer you the loan funds you need.

Where can you get a loan to pay off credit cards?

A few options are available to you if you’re looking to take out a loan. The most common are:

What are the best personal loans to consolidate debt?

Some of the best personal lenders are:

  • SoFi
  • LightStream
  • Upstart
  • Discover

 

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