Why You Should Use a Personal Loan to Pay Down Debt

# Why You Should Use a Personal Loan to Pay Down Debt

Personal loans offer a practical route out of high-interest credit card debt. The average American carrying credit card debt holds a balance of around $6,354, and personal loans provide a way to consolidate that burden into a single, lower-rate monthly payment.

Here's how it works. Credit cards typically charge 18% to 25% annual interest rates. Personal loans generally range from 6% to 36%, depending on your credit score and the lender. If you have good credit, you could qualify for a personal loan at 8% to 12%, cutting your interest costs substantially. That difference compounds fast. On a $6,354 balance, the interest savings between a 22% credit card rate and a 10% personal loan rate amount to hundreds of dollars over the repayment period.

The mechanics are straightforward. You borrow a fixed amount through a personal loan, use that money to pay off your credit cards entirely, then pay back the personal loan on a fixed schedule. Most personal loans come with repayment terms of 24 to 60 months. You know exactly what you'll pay each month. No surprises.

This strategy works best if you address the root problem. Once you've consolidated your debt, you need to stop using those credit cards or use them sparingly. Otherwise, you'll end up carrying both a personal loan payment and new credit card debt.

Shop around before borrowing. Banks, credit unions, and online lenders all offer personal loans. LendingClub, SoFi, Marcus by Goldman Sachs, and Earnest serve borrowers with varying credit profiles. Credit unions often offer competitive rates to members. Even a difference of 2% in interest rates significantly reduces what you pay overall.

Personal loan consolidation also simplifies your finances. Instead of juggling