How to Pay Off Credit Card Debt with a Personal Loan
The average American household carrying a credit card balance has over $16,000 in debt, but you sure wouldn’t know it. People talk all day long about their workouts, favorite apps, and their love lives, but bring up the subject of money, especially credit card debt, and suddenly everyone clams up.
“Money is the last taboo subject,” said SoFi Chief Operating Officer Joanne Bradford in a May episode of the Digiday podcast. “People will still not talk about it. They’re uncomfortable with talking about how much they make, how much they save, what they can do with it.”
According to the American Psychological Association’s latest “Stress In America” report, money is the number one cause of stress—ahead of work, family, and health concerns. So unless you’re expecting a windfall from a long-lost relative (who probably didn’t talk about money either), it’s up to you to come up with a game plan to manage your finances.
Committing a portion of every salary increase to paying down credit cards and personal loans is the obvious solution, but it isn’t the only option. Refinancing debt is also a smart strategy, especially for those in the post-grad plateau— the early stages of a promising career—with plenty of raises just around the corner.
With fixed-rate credit cards becoming more difficult to find, and the average annual percentage rate (APR) for variable-rate credit cards just over 16% as of this writing, you could save thousands of dollars by refinancing credit card debt with a credit card consolidation loan. Fortunately, applying online usually doesn’t take more than a few minutes.
Related: To understand how much interest you are paying on your debt use our Credit Card Interest Calculator.
“Most people do not like to pull into a parking lot to go and stand in line to sign some papers,” said Bradford. Her point? The easier it is for customers to consolidate debt and refinance, the more likely they’ll be to take advantage of its benefits.
There’s also the savings argument, which becomes a no-brainer once you run the numbers.
Let’s say you have a $15,000 balance on a fixed-rate credit card with a 16% APR, and your goal is to pay it off within three years. Your monthly payment would be about $527, while your total interest cost would be about $3,972—and that’s if you don’t continue to charge new credit card debt.
But if you qualify for a 7.5% APR personal loan with a three-year term, and use it to refinance your credit card debt, your monthly payment would go down by $60 and you’d save over $2,000 on total interest over the life of the loan.
Recommended: 5 To-Do’s Before Taking Out a Personal Loan
Need another reason to consolidate and refi credit card debt? How about five?
Here’s how a SoFi personal loan can help you pay off your credit card debt and bolster your bottom line:
1. Borrow from $5k-$100k at fixed rates that start at 5.95% APR, and variable rates that start at 4.82% (with AutoPay).
2. No origination fees or prepayment penalties.
3. Easy online personal loan application and access to live customer support seven days a week.
4. If you lose your job, SoFi will temporarily pause your payments and help you find a new job. (Note that interest accrues during the forbearance period and is added to principal when you resume repayment.)
5. End the vicious cycle of credit card debt, rather than transferring the balance to yet another credit card, which you might continue to charge up.
Armed with new information and a game plan, the next time the subject of money—specifically credit card debt—comes up, you’ll have plenty to talk about. And if you share this article with friends who want to cut up a few of their credit cards before the holiday shopping season begins, they’ll be able to join the conversation, too.
Editor’s Note: This is an updated version of a post we originally published in June 2015. We welcome new comments and questions below.