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The funds from a personal loan can be used for anything from paying off high-interest credit card debt to setting up a new home gym. But how hard is it to qualify for a $3,000 personal loan? And what if you have bad credit? Lenders may charge higher interest rates and financing fees because a borrower with bad credit is considered higher risk. Should you turn to a non-bank lender in this situation?

Read on to find out how to get a personal loan, what credit score you need for a personal loan, and where to go to get a loan if you have bad credit.

Can I Get a $3,000 Personal Loan with Bad Credit?

A personal loan is money borrowed from a bank, credit union, or online lender. (Banks and credit unions can do business online, of course, and some do business entirely online.) Personal loan amounts range from $1,000 to $100,000, and the principal is paid back with interest in fixed monthly payments, typically over several months to seven years. Personal loans are flexible, meaning they can be used for virtually any purpose, from a cross-country move to home improvements. There are even vacation loans and wedding loans in the personal loan category.

Getting approved for a personal loan that is $3,000 with bad credit may mean you have to jump through a few hoops to qualify. What is bad credit? According to FICO®, someone with a score of 580 or below is considered to have “poor” credit (the lowest rating tier) and poses a high risk to a lender.

When calculating an individual’s credit score, FICO and other rating agencies will look at a variety of factors, including whether you pay bills on time, how long you have held credit lines or loans, how much of your available credit you are currently using, how often lenders have pulled your credit report, and your history of bankruptcy or foreclosure.

A low credit score indicates that you could be at a higher risk of defaulting on a loan. To compensate for that risk, a lender may charge you a higher interest rate for a loan or credit card, or you may have to put down a deposit or provide collateral.

Factors Lenders Consider Beyond Credit Score

When lenders evaluate your application for a personal loan, they might consider other factors in addition to your credit score. Your debt-to-income (DTI) ratio — the amount of your monthly debts divided by your monthly pretax income — will be important. Lenders prefer a DTI ratio below 35% or 40%.

Lenders may also consider your income history. Having a steady source of income and showing gradually increasing income will help your case.

What Is the Typical Credit Score Required for a $3,000 Personal Loan?

While some personal loan lenders allow you to apply with a very low credit score, many require a minimum credit score of 620 to be considered for a $3K loan. Generally, the higher your credit score, the lower the interest rate you will pay when compared to other borrowers seeking the same size loan. A score of 670 to 720 or higher is preferred for the best available rates.

Benefits of a $3,000 Personal Loan

The benefits of a $3,000 personal loan include flexibility and predictability. The loan can be used for pretty much anything you need, and the payments will be the same each month until the loan is paid off.

Interest Rates and Flexible Terms

The interest rate for a personal loan will typically be fixed for the term of the loan, and the repayment terms are flexible, ranging between a few months to seven (or more) years. Personal loans typically have a lower interest rate than a credit card, and the rates can be much better if you have excellent credit. You might also be able to borrow more using a personal loan versus a credit card.

Fixed Monthly Payments

A personal loan will have fixed monthly payments for the life of the loan, which makes budgeting for bills easier.

No Collateral Required

Using collateral for personal loans typically is not necessary. These are called “unsecured” loans. Unsecured personal loans are also sometimes called “signature loans.”

Some loans require the borrower to use their car or home as an asset to guarantee the loan. The interest rate may be a little higher for an unsecured loan than it would be for a secured loan because the lender assumes more risk, but you won’t risk your car or home if you default. There are also hard money personal loans, often used by those investing in real estate. These use the home as collateral. But most personal loans don’t involve collateral.

Recommended: Secured vs. Unsecured Personal Loans

Cons of a $3,000 Personal Loan

A personal loan might not be the best option depending on your situation and the loan’s purpose. Here are some of the downsides to a personal loan.

Debt Accumulation

Many people use personal loans to pay off credit card debt because the interest paid on a credit card is generally more than the interest paid on a personal loan. However, this can be a double-edged sword if clearing your credit card balances tempts you to use those cards again and rack up even more debt.

Origination Fees and Penalties

Personal loans may come with significant fees and penalties that can drive up the cost of borrowing. Though some lenders don’t charge origination fees, these fees are common and can run as high as 10% of the loan amount. If you decide to pay off the balance before the term ends, you may have to pay a penalty.

Interest Rates May Be Higher Than Other Options

This is particularly true for people who have a low credit score. In that case, a credit card might charge a lower rate than a personal loan.

If you have equity in your home, another option is a home equity line of credit (HELOC) or a home equity loan. Alternatively, a balance transfer credit card might charge a lower interest rate than you’re currently paying on your credit card balance.

Risk of Relying on Personal Loans for Ongoing Expenses

Whatever method of borrowing you choose, it’s a red flag if you are seeking a loan or piling up credit card debt to cover routine costs like your rent, groceries, or heating bills. If this is the case, take a hard look at how you are spending money throughout your life to determine whether you have opportunities to redistribute funds so you don’t need a loan for everyday expenses. Credit counseling might be helpful to you.

Where Can I Get a $3,000 Personal Loan?

You can obtain a personal loan from many different sources, each with its own distinctive qualities.

Banks and Credit Unions

A bank will typically require good credit to qualify for a personal loan. You may also need an account with the bank. Account holders are likely to qualify for the lowest interest rates and bigger loans. Some banks will require you to visit a branch and complete the application in person, but not all banks and credit unions have branches and some do business only online.

Credit unions may offer lower interest rates and more flexible terms for members. Having a history with a credit union might boost your eligibility. Through March 10, 2026, federally chartered credit unions cap annual percentage rates (APRs) at 18%, so borrowers with imperfect credit may receive lower rates than they would elsewhere. This cap may or may not be extended in future months.

Online Lenders

Online lenders do business entirely online. Some (but not all) are technically banks, in that they are regulated at the federal or state level. Online lenders offer a streamlined application process, and loans are often funded within two days. Some users choose online lenders for reasons of speed. Others might opt for an online lender because some online lenders have more lenient credit score requirements for personal loans than brick-and-mortar banks.

When using an online lender, you can typically get prequalified and see your potential loan terms before you apply. An online lender might do a soft credit check to prequalify you for a loan, but your credit rating will not be affected. If the idea of applying entirely online and tracking every step of your loan process from your phone appeals to you, an online lender could be a good fit. Check interest rates and loan terms as you would with any lender.

Peer-to-Peer Lending Platforms

Peer-to-peer lending has grown in popularity in recent years. It allows those who wish to borrow money to connect through an app with investors (individuals or companies) willing to lend. Loans can be approved and funded in as little as one day. Some peer-to-peer platforms have lower credit score requirements or higher loan limits than banks, credit unions, or online lenders. This type of lending has become especially popular among entrepreneurs starting small businesses. The time allotted for borrowers to repay the loan may be shorter than it would be with a bank, while the fees may be higher.

How to Apply for a $3,000 Personal Loan

1.    Check your credit reports. You may find errors on your reports that you can fix to boost your eligibility for lower-rate loans.

2.    Compare the terms and conditions offered by lenders. A personal loan calculator can help you determine what your payments will be.

3.    Prequalify if you can, because it won’t affect your credit score and will help you with your comparison.

4.    Consider using your car or other collateral to get a better rate with a secured loan.

5.    Use a cosigner (with good credit) to get a better rate. The cosigner’s credit rating is considered along with your own, but they must agree to pay the loan if you cannot.

6.    Gather the documents you need and apply to the best lender. Examples of documents you may be asked to provide are W-2s, paystubs, and financial statements.

What Happens After Approval and Funding

Once you’ve filed your application, you’ll await word as to whether your loan request has been approved. If your application is approved, the lender will deposit the funds into the bank account or your choice. If you are using the loan to pay down credit card debt, some lenders will pay the credit card lender for you. The whole process could take anywhere from a day to two weeks. You’ll then begin making monthly payments covering a portion of the principal (what you have borrowed) and the interest.

💡 Quick Tip: To find the lowest personal loan rate with SoFi, compare different term lengths and select the option that best fits your budget and financial goals.

Choosing Between $5,000 and $10,000 Personal Loans

When you’re thinking about applying for a personal loan, it’s important to understand the different factors that can affect your borrowing costs: the loan amount, the APR, and the repayment term. As a reminder, the APR, or annual percentage rate, is the interest rate plus any fees — in other words, the total cost of borrowing. Let’s examine how the APR might affect costs by looking first at the costs of a $5,000 loan:

$5,000 Personal Loan

Here’s an example of what your costs would be if you took out a $5,000 loan with a three-year term at various APRs:

Now let’s see what happens to costs if you increase the loan amount to $10,000.

$10,000 Personal Loan

If you’re wondering how much of a personal loan can I get and consider a larger loan amount, it helps to compare the costs of smaller and larger loan amounts. The monthly payment on a personal loan of $10,000 with a 12.00% APR and a three-year term would be $332.13. The loan’s total interest cost by the end of the term would be $1,957.15.

A Shorter Repayment Term

The shorter the repayment term, the higher your monthly payments will typically be. If you were to opt for the same $10,000 loan and got the same 12.00% APR rate but had a five-year term rather than a three-year one, the monthly payment would be $222.44 and total interest cost would be $3,346.67.

The Takeaway

A personal loan is a way to get flexible financing quickly. A personal loan can be used for nearly any purpose, and the term of the loan can range from a few months to seven or more years. Banks, credit unions, online lenders, and peer-to-peer lenders offer these loans at varying interest rates.

Personal loans are popular for people who want to consolidate their debt or pay off credit cards that charge a higher interest rate. The requirements for a $3K loan depend on the lender, but a good credit score will typically get you a better rate. It’s important to check rates and examine fees at various lenders before diving into the application process.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What credit score is needed for a $3,000 personal loan?

A score of at least 620 is typically required to qualify for an unsecured personal loan, though some online lenders and peer-to-peer lenders will accept lower scores. To qualify for a lender’s lowest interest rate, however, borrowers generally need a score of at least 670 to 720 or higher.

Is it possible to get a $3,000 loan with bad credit?

Some lenders, primarily online or peer-to-peer lenders, will extend personal loans to people with bad credit. In fact, some online lenders will specifically advertise personal loans for borrowers with bad credit. However, the terms may include high interest rates and fees.

What’s the monthly payment on a $3,000 personal loan?

The monthly payment on a $3,000 personal loan will depend on the loan term and the interest rate. For example, the monthly payment on a two-year $3,000 loan with an annual percentage rate (APR) of 12.00% would be $141.22. The monthly payment on a $3,000 loan with a six-year term and an APR of 12.00% would be $58.65.

How long does it take to get approved and funded for a $3,000 personal loan?

Depending on the lender and your financial credentials, it is possible to be approved in as little as a day, although the entire process — from application to receiving funds — can sometimes take up to two weeks.

Can I use a $3,000 personal loan for any purpose?

Borrowers can use funds from a personal loan for practically anything. Debt consolidation (paying off credit card debt) is a common use, but some borrowers use personal loans to pay for travel, medical bills, or a wedding, among other things. The important thing when taking out a personal loan is that you have a strategy in place to repay what you have borrowed.

Photo credit: iStock/nortonrsx

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q126-005

Coming up with enough cash for a down payment to buy a house is often the biggest hurdle for prospective homebuyers. To avoid paying for mortgage insurance, you typically need to put down 20% of the purchase price. These days that can be a hefty sum: The median home sale price at the end of 2025 was $428,275, according to Redfin. That means a typical buyer who wants to put down 20% would need to accumulate at least $85,655.

If you don’t have that kind of cash sitting around, using a personal loan might sound like a great solution. Unfortunately, many mortgage lenders do not permit you to do this. Even if you can find one that does permit it, making a down payment with a personal loan may not be a good idea. Here’s what you need to know about using a personal loan for a down payment.

Why Can’t I Use a Personal Loan as a Down Payment?

As part of the mortgage application process, a lender will want to verify the sources for your down payment. Being able to provide documentation that you have enough money in savings to cover your down payment (and then some) gives the lender confidence in your strength as a borrower and your ability to repay the loan.

If you fund a down payment through a personal loan, however, a lender may see this as a sign of potential financial instability, which raises the lender’s risk. As a result, some types of mortgages — including conventional mortgages and FHA mortgages backed by the Federal Housing Administration — forbid the use of a personal loan as a down payment loan for a home.

Why Is It Bad to Use a Personal Loan for a Down Payment on a House?

Even if you are able to find a mortgage lender that allows you to use a personal loan for a down payment, doing so can have several negative consequences. Here are the primary reasons why it’s considered a bad idea.

•   It can increase your DTI: Having a personal loan on your credit reports impacts your debt-to-income (DTI) ratio — what proportion of your monthly income goes to repaying debts. A higher DTI ratio can make it more challenging to qualify for a mortgage or reduce the amount for which you can qualify.

•   It might increase your interest rate. Taking out a personal loan to cover a down payment signals to a mortgage lender that you’re financially stretched and may not be able to afford homeownership. This makes you a greater risk. To protect itself, a lender may offer you a higher rate than it would offer a borrower who is using savings for the down payment.

•   Higher monthly payments: Personal loans typically have shorter terms and higher interest rates than mortgages. Using a personal loan for a down payment on a house means additional debt on top of a mortgage, which could be difficult to manage and lead to financial strain.

•   Greater risk of default. If your budget is stretched due to multiple debts, you could potentially fall behind on your personal loan, mortgage payments, or both. If that happens, you risk defaulting on your debt, damaging your credit, and in a worst-case scenario, losing your home.

Recommended: Typical Personal Loan Requirements Needed for Approval

What Are Alternatives to a Personal Loan for a Down Payment?

Instead of using money from a personal loan for a down payment on a house, here are other ways to fund this milestone purchase. Consider these options as you prepare to buy a home:

Savings

If you’re not in a rush, you may want to ramp up your savings and put time to work for you. To ensure consistency with your savings, consider setting up an automated transfer from checking to a dedicated savings account for a set day each month. You might also want to put any windfalls — like a tax refund, work bonus, or cash gift — toward your down payment fund so that you can afford a down payment on your first home sooner.

Gifts From Family

Many mortgage lenders allow down payment funds to come from gifts provided by family members. If you have relatives who are willing and able to assist, this can be a viable option. Since a lender may ask you to substantiate any large deposits into your bank account, it’s a good idea to ask the giver to provide a letter to your lender detailing the amount and confirming that it is a gift and not a loan.

Down Payment Assistance Programs

If you’re still wondering can you get a loan for a down payment, look into local, state, and federal programs that offer down payment assistance to eligible homebuyers. These programs can provide grants, low-interest loans, or forgivable loans to help cover your down payment and closing costs. They’re typically geared toward first-time homeowners who are low- to middle-income. The Department of Housing and Urban Development (HUD) allows you to connect with a local home-buying counselor to learn about options on the HUD website.

Look Into Loans That Require a Smaller Down Payment

There are some types of mortgages that do not require a large down payment. FHA loans, for example, allow eligible borrowers to put down as little as 3.5%. USDA loans (targeted to certain suburban and rural homebuyers) and VA loans (designed for U.S. service members and their surviving spouses) don’t require any down payment.

Retirement Account Loans or Withdrawals

Some retirement accounts, like a 401(k) or IRA, allow you to take out a loan or make a withdrawal for a home purchase. While this option can provide the necessary funds, it’s essential to understand the implications, such as potential taxes, penalties, and the impact on your retirement savings. It’s a good idea to consult with a financial advisor to determine if this could be a good option for your situation.

Budget Changes and Side Income Opportunities

Making a budget that includes a line for savings for a down payment (and then sticking to it) is a good way to ensure you’re socking away money for your home purchase. Budgeting will entail taking a good look at recent bank and credit card statements and chronicling cash expenditures so that you can also look for opportunities to pare back on your spending so that more money can go to the home purchase.

You may also realize that in order to pay all your current bills and still save for a home, you’re going to need to increase your income. Adding a part-time job or a side hustle to your schedule could help you save for a down payment.

Extending Your Timeline to Save More

Giving yourself more time to save money can also help. Not only will you be able to put away cash, but if you place the money somewhere that it can earn some interest, your money can compound while it waits.

Recommended: Guide to Personal Loans for Beginners

How Much Down Payment Do You Really Need?

And as you make a list of what do you need to buy a house, the down payment is only part of the picture. You’ll need cash on hand to cover closing costs, which tend to be 2% to 5% of your mortgage amount. Additionally, you’ll need to think about your loan type.

Typical Down Payment Requirements by Loan Type

How much is a down payment on a house will, to some extent, depend on what type of home loan you choose. A conventional mortgage loan can require as little as 3% down for qualified first-time homebuyers and 5% for repeat buyers. As noted above, you’ll need to put down 20% to avoid paying for private mortgage insurance. But the average first-time homebuyer down payment has ranged from 6% to 9% in recent years.

Government-backed loans tend to require a small down payment or none at all. FHA loans allow homebuyers with a credit score of at least 580 to put down as little as 3.5%. Those with a score of 500 to 579 will need a 10% down payment.

USDA loans and VA loans, as noted above, don’t require any down payment.

Pros and Cons of Putting More Money Down

So you can buy a home with far less than 20% down. But should you do so, or should you wait? The answer will depend on your personal situation, but here are some pros and cons to consider:

Pros

•   More equity from the start.

•   Quicker access to a home equity loan (after hitting 20% equity).

•   Lower monthly mortgage payment.

•   Avoid paying for private mortgage insurance (if 20% is put down).

Cons

•   You may have to wait longer to save the money.

•   You may be missing a good time to buy (e.g., end of a lease, good school district opportunity).

•   You may pay more in rent while waiting to save.

Putting more money down means you will have more equity in your home from the point that you purchase it. If you’re buying a home that needs some renovations, you’ll hit the 20% equity necessary for a home equity loan more quickly than you would if you put down very little.

More money down means a lower monthly mortgage payment. You can use a mortgage calculator to examine the effect of different down payment and loan amounts on monthly costs. And of course, hitting the 20% mark on a down payment allows you to avoid paying for private mortgage insurance.

But there are also a few reasons to move forward with a low down payment. If you’re renting and your lease is up, this could be the right time to buy. Ditto if your child is starting kindergarten and you’ve found a home in a desirable school district. And if your rent is the same as or more than you would pay to purchase a home with a small down payment, it might make sense to move forward. Putting down 3%, 5% or even 10% also allows you to begin building some equity in a property that you own, even if it can take years for that equity percentage to grow significantly.

Recommended: Guide to Getting a No Down Payment Mortgage

The Takeaway

Taking out a personal loan might seem like a good way to get the funds for a down payment on a home. The problem is that many mortgage lenders won’t permit you to use a personal loan for down payment and, if they do, may charge you a higher interest rate or lower your loan amount, as they will view you as a risky borrower.

Personal loans are generally better left for other purposes, such as covering emergency expenses, consolidating credit card debt, or making home repairs or improvements (once you become a homeowner). If you are considering getting a personal loan, be sure to shop around to find the right offer.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can you use a personal loan for closing costs?

It may be possible to use a personal loan to cover closing costs when buying a home. These costs, which may include appraisal fees, title insurance, and attorney fees, can add up quickly. Just keep in mind that some mortgage lenders may not approve a borrower for a mortgage if they have recently taken out a personal loan, as it shows you may not be in a strong financial position to take on other new debt.

Do banks check what you spend your loan on?

Banks typically do not check or monitor what you spend the funds from a personal loan on. Once the loan is approved and the funds are transferred to your bank account, it is up to you to use the money as agreed upon in the loan agreement. Keep in mind that misusing the funds from a personal loan can have financial and legal consequences. If you use the loan money for something other than what was outlined in the loan agreement, you are technically in violation of the terms of the loan. This could potentially lead to penalties, legal action, or damage to your credit score.

What happens if you don’t use all of your personal loan?

If you don’t use all of your personal loan, you’re still responsible for repaying the full amount borrowed, along with interest. If your lender doesn’t charge a prepayment penalty, you might consider using the excess funds to pay off your loan ahead of schedule — this can reduce the total amount of interest you’ll pay for the loan.

Can a personal loan ever be used in the home-buying process at all?

It’s unlikely that you can use a personal loan for a down payment, but you might be able to cover closing costs with a personal loan. But remember that mortgage lenders will be looking at your total debt, so a new or recent personal loan might be a red flag. You’re better off using a personal loan either well before a home purchase, to consolidate and pay off debt so that your finances are healthy when you start home shopping. Or you could consider taking out a personal loan after buying a home to help cover renovation costs.

What are some ways to save for a down payment without borrowing?

To save for a down payment effectively, it helps to put your savings on autopilot. Arrange an automated transfer from your checking account to a home-buying specific savings account once or twice a month. And deposit any windfall funds, such as a work bonus or birthday gift into that special savings as well. Finally, audit at least a month of your spending to look for ways you might cut back in other areas of your life to make more room in your budget for savings.

Photo credit: iStock/whitebalance.oatt

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q126-006

You may have heard that consolidating your debts can hurt your credit score. So, if you’re considering this financial strategy to free up cash flow and otherwise streamline debts, it’s natural to wonder if that’s true. And like so many questions related to finances, the answer depends upon your specific situation.

It’s important to remember that a combination of many factors can affect credit scores and to understand how those factors are considered in credit score algorithms. We’ll use FICO® as an example—according to them, the high-level breakdown of credit scores is as follows:

•  Payment history (35%): This includes delinquent payments and information found in public records.

•  Amount currently owed (30%): This includes money you owe on your accounts, as well as how much of your available credit on revolving accounts is currently used up.

•  Credit history length (15%): This includes when you opened your accounts and the amount of time since you used each account.

•  Credit types used (10%): What is your mix? For example, how much is revolving credit, like credit cards? How much is installment debt, such as car loans and personal loans?

•  New credit (10%): How much new credit are you pursuing?

Now, here is information to help you make the right debt consolidation decision.

Benefits of Debt Consolidation

When you’re juggling, say, multiple credit cards, it can be easy to accidentally miss a payment. Depending on the severity of the mistake, that can have a negative impact on your credit score. This, in turn, can make it more challenging to get loans when you need them, or prevent you from getting favorable loan terms, like low interest rates. Plus, even if you don’t miss a payment, when you have numerous credit card bills to juggle, you probably worry that one will get missed.

Plus, it’s not uncommon for credit cards to have high interest rates, and when you only make the minimum payments on each of them, you very well may be paying a significant amount of money each month without seeing balances drop very much at all.

So, when you combine multiple credit cards into one loan, preferably one with a lower interest rate, it’s much more convenient, making it less likely that you’ll accidentally miss a payment. And paying less in interest will likely make it easier to pay down your debt.

How you handle your debt consolidation, though, and the way in which you manage your finances after the consolidation each play significant roles in whether this strategy will ultimately help you.

Steps to Take: Before the Debt Consolidation Loan

Debt accumulates for different reasons for different people. For some, unexpected medical bills or emergency home repairs have served as culprits. For others, being underemployed for a period of time may have caused them to start carrying a credit card debt balance. For still others, it may be about learning how to budget more effectively.

No matter why credit card debt has built up, it can help to re-envision a debt consolidation strategy as something bigger and better than just combining your bills. As part of your plan, analyze why your debt accumulated and be honest about which ones were under your control and which were true emergencies.

And if you end up using a lower-cost loan to consolidate your bills, consider using any money saved to build up an emergency savings fund to help prevent the accumulation of credit card balances in the future.

The reality is that, if you consolidate your debts in conjunction with a carefully crafted budgeting and savings plan, then debt consolidation can be a wonderful first step in your brand-new financial strategy.

Debt Consolidation: When It Can Help Your Credit Score

Based on the factors used by FICO, here are ways in which a consolidation loan can help credit scores:

Payment history (35%)

Because making payments on time is the largest factor in FICO credit scores, a debt consolidation loan can help your credit if you make all of your payments on time.

Amount currently owed (30%)

Although you may not instantly reduce the amount you owe by, say, consolidating all of your credit card balances into a personal loan, there can be a benefit to your credit score here. That’s because the credit score algorithm looks at credit limits on your cards, as well as your outstanding balances, and creates a formula that calculates your credit card utilization.

Here is more information about credit card utilization, including how to calculate and manage yours.

Credit types used (10%)

As you may know, there are several different types of credit, such as credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. According to myFICO , responsibly using a mix of these, such as credit cards and installment loans, may help your credit score.

However, it’s certainly not necessary to have one of each, and it’s not a good idea to open credit accounts you don’t intend to use.

Debt Consolidation: When It Can Hurt Your Credit Score

Now, here are ways that the same initial step—taking out a debt consolidation loan—may hurt your credit.

Payment history (35%)

As is the case with most loans, making late payments on a consolidation loan can hurt your credit score (depending on the severity of the situation). Loans in a delinquent status are mostly likely to have a negative impact on your credit, depending on the lenders’ policies.

Learn more about payment history .

Amount currently owed (30%)

Now, let’s say that you pay off all your credit cards with a personal loan and then you begin using them again to the degree that you can’t pay them off monthly. Any gain that you saw in your credit score will likely disappear as your credit utilization numbers rise again.

Another way that credit consolidation can harm your score is if you combine all of your credit card balances to just one credit card, resulting in a high utilization rate. But if you are able to keep it relatively low, it is less likely to negatively affect your score.

Learn more about amounts owed .

Credit history length (15%)

If you close credit cards that you pay off, you’ll reduce the age of your accounts, overall, and this can hurt your credit score.

Learn more about length of credit history .

Credit types used (10%)

If you combine all of your credit card balances into just one credit card, as described above, you won’t have opened an installment (personal) loan, so that won’t help with diversifying credit types.

Learn more about credit mix .

New credit (10%)

If you apply for a personal loan or a balance-transfer credit card and are rejected, this can cause your credit score to decrease. And if you apply for multiple loans or credit cards, looking for a lender that will accept your application, this can also hurt your score. Multiple requests for your credit report information (known as “inquiries”) in a short period of time can decrease your score, though not by much.

Learn more about new credit .

Concerned about building or rebuilding credit? Check out a few tips SoFi put together on how to strategically boost your credit score.

Investigating a Personal Loan for Debt Consolidation

When it’s time to apply for the personal loan, you’ll want to get a low rate. In February 2019, the average credit card interest rate was reported as 17.67%; this means that, by not consolidating your credit cards into a personal loan with a lower interest rate, you could be paying more interest than if you did.

When choosing a lender, ask about the fees associated with the loan. Some lenders charge fees; others,like SoFi, don’t. You can always use a lender’s annual percentage rates (APRs) as a way to understand the true cost of financing.

Also, you may consider calculating the shortest loan term that your budget can comfortably accommodate because, the more quickly you pay off the debt, the more money you’ll save over the life of the loan because you’re paying less in interest.

You can find more information about saving money as you consolidate your debts, and you can also calculate payments using our personal loan calculator.

Consolidate Your Debt with a SoFi Personal Loan

If you’re ready to say goodbye to high-interest credit cards and to juggling multiple payments each month, a SoFi personal loan may be a good option.

Benefits of our personal loans include:

•  Fast, easy, and convenient online application process

•  Low interest rates

•  No origination fees required

•  No prepayment fees required

•  Fixed rate loan

You deserve peace of mind. And by taking out a personal loan to consolidate debt, the stress of juggling multiple credit card payments can be history. Ready for your fresh start?

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing and How Does it Work?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Common Ways to Refinance Credit Card Debt

A common way to accomplish a credit card refinance is to pay off your existing credit cards with a brand-new balance-transfer credit card. This type of card offers a low or 0% interest rate for a promotional period that may last from a few months to 18 months or more. Can you refinance a credit card that you already have? Perhaps. You can always try to approach your existing credit card issuer and ask for a lower interest rate, possibly by doing a balance transfer to a lower-rate card issued by the same company.

What are the Benefits of Credit Card Refinancing?

We’ve discussed what is credit card refinancing and its goal: to lower your interest rate. Now let’s explore some of the benefits (and drawbacks) of refinancing.

Pros

•   You may qualify for a promotional 0% annual percentage rate (APR) during your card’s introductory period. If you can pay down your debt during this time, you could potentially get out of debt faster.

•   Depending on the interest rate you’re offered, you could save money in interest charges.

•   Bill paying would be streamlined if you decide to refinance multiple credit cards into one new credit card.

•   If monthly payments are reasonable, it may be easier to consistently pay them on time. This can help build your credit score.

Cons

•   The introductory 0% interest period is short-term, and after it ends, the interest rate can skyrocket to as high as 25%.

•   There may be a balance transfer fee of 3%-5%, which can add to your debt.

•   0% interest balance transfer cards often require a good or excellent credit score to qualify.

•   Your credit score may temporarily dip a few points when you apply for a new credit card or loan. That’s because the lender will likely run a hard credit check.

Recommended: What Is the 10% Credit Card Interest Rate Cap Act?

Who Should Consider Credit Card Refinancing?

Credit card refinancing isn’t right for everyone. That said, a balance transfer to a 0% APR card could be a good move if you have a smaller debt to manage or are carrying a balance on more than one credit card. Plus, transferring multiple balances into one card can streamline bills. All of the usual credit card rules apply when you transfer a balance, so you’ll want to make every payment on time with your new card.

Refinancing may make sense if you’re looking for better terms on your credit card debt, qualify for a 0% APR, and can pay off the balance before the promotional period ends.
So, as you’re weighing your options, you’ll want to consider a number of factors, including:

•   Your credit score and credit history

•   How much debt you have

•   Your personal finances and whether or not you can eliminate the debt fairly quickly

Recommended: The Risks of Payday Loans

What Is Credit Card Debt Consolidation?

Credit card debt consolidation is an alternative to credit card refinancing. The term “debt consolidation” refers to the process of paying off multiple credit cards or other types of debt (such as medical debt) with a single loan, referred to as a debt consolidation loan. The main purpose of consolidation is to simplify bills by combining multiple payments into one fixed loan payment, while ideally also saving on interest.

Types of Debt Consolidation

There are two primary types of debt consolidation loans: a personal loan and a loan secured by your home equity. The latter could be either a home equity loan or a home equity line of credit (HELOC). Not everyone owns a home or has enough equity to qualify for home equity lending, so let’s focus on what a personal loan is and how you might use it to consolidate debt.

A personal loan (sometimes referred to as a debt consolidation loan) will often have a lower interest rate than most credit cards (with the exception of the 0% APR period on a credit card, of course). However in order to qualify for a lower rate on a personal loan, you’ll need to have a strong credit score, which will largely determine your personal loan interest rate. Depending on your financial profile, you might be able to borrow anywhere from $5,000 to $100,000.

There are pros and cons to paying off multiple credit cards with a single short-term loan. Let’s take a look:

Pros

•   Personal loans often have lower interest rates than credit cards and can save you money on monthly payments as well as on interest charges over the life of your debt repayment.

•   You can pay off multiple debts with one loan, which can take the hassle out of bill paying.

•   The structured nature of a personal loan means you can make equal payments toward the debt at a fixed rate until it is eliminated.

•   With most personal loans, you can opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.)

Cons

•   The terms of a loan will almost always be based on your credit history and holistic financial picture (another reminder to keep an eye on personal finance basics like making timely payments). Not every borrower will qualify for a low interest rate or get approved for a personal loan at all.

•   Some lenders may charge fees, including personal loan origination fees.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

Credit Card Refinancing vs. Debt Consolidation

To recap, the difference between debt consolidation and a credit card refinance is first a matter of goals.

With credit card refinancing — as with other forms of debt refinancing — the aim is to save money by lowering your interest rate. Debt consolidation may or may not save you money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule. This structure and simplification can be just what it takes to help some borrowers who are struggling with credit to get their debt paid off.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low interest rate for a short time. This limits the amount you can transfer to what you can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Which strategy is right for you? That depends on a number of factors, including the amount of debt you have, your current interest rates, and whether you’re able to stick to a structured repayment schedule. Of course, it’s important to regulate your use of credit cards in either scenario. The last thing you want is to be paying off a personal loan or facing the expiration of a 0% interest rate when you’ve racked up more credit card debt.

The chart below sums up the credit card refinancing vs. debt consolidation story.

Side-by-Side Comparison of Key Features

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for the best rates on these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

Which is better: credit card refinancing or debt consolidation?

There are advantages and drawbacks to both strategies. Credit card refinancing can help you lower your interest rate, which can save you money. Debt consolidation might save you money on interest, but it will definitely simplify bill paying by replacing multiple cards with one monthly bill.

Is refinancing a credit card worth it?

Refinancing a credit card may be worth the effort because it can lower your interest rate, potentially save you money, and make payments more manageable.

Is refinancing the same as consolidation?

Though refinancing and consolidation can both help you manage your debt, they serve different purposes. Refinancing involves moving credit card debt from one card or lender to another, ideally with a lower interest rate. Paying less in interest while you pay off your debt is the main goal of refinancing. When you consolidate, you settle multiple debts with one loan. Simplifying bills into one fixed loan payment is the main reason to consider this strategy.

How do credit card refinancing and consolidation affect my credit score?

Credit card refinancing and debt consolidation might temporarily reduce your credit score because your lender will likely do a hard credit check to qualify you for the account. But with time and consistent, on-time payments, your credit score should rebound. Consolidating several credit cards into one personal loan might also help improve your credit utilization ratio, which in turn should nudge your score upward. Opening new credit accounts, however, can reduce the overall age of your credit accounts, as can closing old accounts. Both of these can ding your credit score. If you aren’t applying for other forms of financing, such as a mortgage, none of this should be a huge concern so long as you are using the credit card refinance or consolidation to reduce debt and better manage your finances.

What should I consider before refinancing or consolidating?

The most important thing to consider when thinking about credit card refinancing or debt consolidation is whether you will save money when interest and fees are factored in. It’s also important to have a good look at your credit habits. If you think having a new credit card with 0% introductory financing might result in you charging even more and falling more deeply into debt, you might want to consider a personal loan and/or explore credit counseling, in which you will work with a professional to help change unhealthy habits and develop a strategy to reduce debt.

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Almost half of all Americans carry a balance on their credit card, month after month. If you’re among their ranks, you know that the combination of high prices and high credit card interest rates can make it challenging to pay that debt off in full.

Many cardholders have seen their interest rates creep up in recent years, in line with the Federal Reserve’s recent rate increases. That means interest payments are gobbling up a bigger share of credit card balances. And those credit card balances can be major. This kind of debt hit a staggering $1.23 trillion in late 2025, according to data from the Federal Reserve Bank of New York.

But the situation isn’t hopeless, however. If you’re one of the cardholders who can’t pay credit card debt in full, here are five steps you can take to address it.

Step 1: Check your Credit Card Interest Rate

If you haven’t carried a credit card balance before, you may not be aware of what interest rate your credit card is charging. But it’s important to know exactly how much you’re getting charged so if you need to, you can budget for interest expense as well as your purchases.

Average credit card interest rate ranges from 20%-25% currently. (Depending on what type of credit card you have, your credit score, and your credit history, you may have a higher or lower interest rate than the average.)

With interest rates this high, it can be a real financial setback to carry a balance for an extended length of time, making only the minimum credit card payment. You may find that you are only paying interest and making little headway in paying off what you actually spent.

💡 Quick Tip: With credit card interest rates rising in recent years, calls for credit card interest caps have been in the spotlight. Those carrying high-interest credit card debt, however, may find debt relief by switching to a fixed, lower-interest personal loan. A SoFi personal loan for credit card debt may provide a cheaper, faster, and predictable way to pay down debt.

Step 2: Understand How Your Grace Period Works

If you pay your credit card statement balance in full by the due date, a credit card grace period will usually take effect for the next billing cycle. That means you won’t owe interest on new purchases until the due date for the next billing cycle. If you pay that statement balance in full by the next due date, the grace period will continue into the next cycle, and on and on.

But, if you make only the minimum payment or a partial payment on the full statement balance by the credit card due date, you’ll get charged interest on the remaining balance and lose your grace period for the next billing cycle. This means you’ll owe interest on any purchase immediately. Even if you go back to paying the full balance, your grace period may not renew for several more cycles, depending on the specific terms of your credit card.

If you’re in a position where you can’t pay credit card bills and must move to partial payments, make sure you’re aware of the additional interest expense you’ll incur on the remaining credit card balance. Try your best to stop making new purchases with that card since interest will be charged on those purchases immediately.

Recommended: What Is a Charge Card

Step 3: Look at Changing Your Due Date

If you’re feeling overwhelmed because many of your bills are due at the same time, talk to your credit card company about changing your due date. You might be able to move your credit card due date to a day of the month that works better for your budget, so the payments you owe are a bit more staggered.

While this switch might not help immediately to pay down credit card debt, it could offer some relief in the long run.

Recommended: How to Avoid Interest On a Credit Card

Step 4: Explore Ways to Pay Off Your Balance Faster

You may find that with higher interest rates and inflationary spending, you need a more efficient way to pay off your credit card debt, such as by refinancing credit card debt. Luckily, there are some options for how to pay off credit card debt, though keep in mind the best way to pay off credit card debt will depend on your financial specifics.

Balance transfer credit cards that offer a limited time low or sometimes even 0% interest rate can help — especially if you think you can pay the balance in full during the promotional low-rate period.

Another option you might consider is applying for a low-interest personal loan to pay off credit card debt in full. This could help you secure a lower interest rate, and by consolidating your credit card debt, you’d have fewer due dates to keep track of. Keep in mind, however, that there are pros and cons of personal loans to pay off credit card debt.

Recommended: Tips for Using a Credit Card Responsibly

Step 5: Consider Using a Budgeting Tool

If you’re finding it hard to make your credit card payments, that can be a signal it’s time to take a close look at your spending, perhaps with the help of one of the many online budgeting tools available.

Personal finance tools can help you understand just how much your cost of living has risen in recent months and make it easier to flag places you can cut back. Some can help to pinpoint fees you may be paying unwittingly or the automatic payments you’re making on your credit card that could get trimmed. Cutting these costs can then make it easier to pay off credit card debt.

The Takeaway

If you’re struggling with a credit card balance you can’t pay off, taking steps to pay off credit card debt faster and budget smarter can help. These can involve understanding your rate, changing your payment due date, and other moves.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What is a fast way to pay off credit card debt?

You might be able to use a balance-transfer credit card and pay down your debt during the 0% APR promotional period. Or you might consider securing a personal loan to pay off the debt. You would then pay off the personal loan, which could have a lower interest rate.

Can you change your credit card payment due date?

You may be able to change your payment due date. See if your card’s website or app allows this kind of shift, or contact customer service.

Do most Americans carry credit card debt?

According to recent data, approximately 49% of Americans carry credit card debt.

Photo credit: iStock/Sneksy

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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