# Personal Loans as a Debt Payoff Tool
The average American carries roughly $6,354 in credit card debt. Personal loans offer a direct way to eliminate this balance faster and cheaper than paying minimum amounts on high-interest credit cards.
Personal loans typically charge 6% to 36% annual interest, depending on your credit score and lender. Credit cards average 16% to 21% APR. This gap matters. If you owe $6,354 on a credit card at 18% and pay $200 monthly, you'll spend four years paying it off and fork over roughly $2,000 in interest alone.
A personal loan consolidating that same debt at 12% APR over three years costs about $1,000 in interest. You save money and free yourself from debt sooner.
The mechanics work simply. You borrow a lump sum from a bank, credit union, or online lender like LendingClub or Earnin. You use it to pay off your credit card balance in full. Then you repay the personal loan through fixed monthly installments, usually over two to seven years.
The strategy works best when you stop using the credit card once you've paid it off. Otherwise you'll accumulate new balances while still repaying the loan.
Your credit score temporarily dips when you apply for a personal loan, because lenders perform a hard inquiry and you're adding a new account. But the score rebounds quickly. Within months, the account history, lower credit utilization (the cards now show zero balance), and on-time loan payments typically lift your score above where it started.
Online personal loans from SoFi, Upgrade, or Prosper move fast, approving and funding within days. Traditional banks like Chase or Bank of America take longer but offer lower rates to existing customers.
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