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Unsecured personal loans are loans provided by banks, credit unions, and online lenders that do not require any type of collateral. They provide an opportunity to borrow funds without putting any of your assets (like your home or car) at risk. The funds can be used for virtually any purpose, including debt consolidation, home improvements, and large purchases.

How do you know if an unsecured personal loan is the right choice for you? Learn the full story here.

What Is an Unsecured Loan?

An unsecured loan is a loan that is not backed by collateral, such as your home, bank account balances, or vehicle. To have a loan backed by an asset (aka a secured loan) means that a bank or lender has the right to take that asset in the event of default on the loan.

Loans backed by collateral (such as mortgages, home equity loans, and auto loans) generally pose less risk to lenders — if the borrower defaults, they can recoup the balance due by seizing the collateralized property. Because unsecured loans pose a higher risk, they tend to have higher interest rates and come in lower loan amounts compared to secured loans.

Some borrowers, however, prefer unsecured loans, since they don’t require you to put your home, car, or other personal assets at risk. You qualify for an unsecured personal loan strictly on your ability to repay the borrowed amount. Lenders assess this by looking at your income, credit scores, and borrowing history.

Top Common Uses for Unsecured Personal Loans

Unsecured personal loans can be used for a wide array of purposes. Here are some of the most common reasons why people take out unsecured personal loans.

Credit Card Payoff

Credit cards tend to have high annual percentage rates (APRs). Currently, in the first half of 2025, the average credit card interest rate is about 24.20%. Personal loan interest rates, on the other hand, can charge half that figure (if you have a high credit score, you may be able to get an even lower APR).

Using a personal loan to pay off credit card debt can potentially help you save money on interest. You can get an estimate of the potential savings of using an unsecured personal loan to pay off a credit card balance by using a personal loan calculator.

Debt Consolidation

If you make many different credit card (or other debt) payments every month, it can be difficult to keep track of all the due dates and minimum amounts owed. If you miss a payment or don’t pay at least the amount due, you can get hit with late fees and your credit could be negatively affected.

Debt consolidation is the process of taking out an unsecured personal loan and using it to pay off multiple debts, leaving you with just one monthly payment. This simplifies repayment and, if you get a loan with a lower interest rate, could also help you save money.

Medical Expenses

Unsecured personal loans can be used to pay for a range of medical treatments, including elective procedures, fertility treatments, prescriptions, surgeries, dental procedures, and more.

A number of lenders, including certain banks, credit unions and online lenders, offer personal loans for medical expenses. Though interest expenses will add to the total cost of treatment, this can be a less expensive option than putting the medical expense on your credit card.

Home Projects

Whether you’re thinking about updating your kitchen or renovating a bathroom, you may be able to use an unsecured personal loan, also called a home improvement loan, to obtain funding for the project.

An unsecured personal loan can be especially useful if you need cash quickly for critical repairs or emergencies. It also provides an alternative to taking out a home equity loan or line of credit for remodeling or repairs, both of which are secured loans and require equity in your home.

Major Purchases

Other large purchases could be funded by a personal loan. This could mean that you are buying tangible items, such as new furniture for a family room or a new water heater. Or you might want to finance a wedding or a big vacation.

Emergency Expenses

A personal loan could be a way to finance a major car repair bill, replace e home heating system that conks out during a cold spell, or other urgent emergency expense. It could also keep you a float if, say, one spouse has lost a job but you still qualify for a loan.

What Are Some Different Types of Unsecured Loans?

The most common types of unsecured loans include:

•   Personal loans Personal loans are typically unsecured vs. secured personal loans, though some lenders offer secured options. Loan amounts range from $1,000 to $50,000 or $100,000 (and occasionally more), with repayment terms of two to eight years. (Some lenders may offer longer terms for large loans.) Interest rates are typically fixed.

•   Personal lines of credit A personal line of credit is a revolving loan, which means the loan can be spent, repaid, and spent again, similar to a credit card. While some credit lines are secured, many lenders offer unsecured options. Personal credit lines typically have a variable interest rate.

•   Student loans Education loans are used to cover the cost of college tuition and expenses. Both federal and private student loans are unsecured. However, student loans usually carry more restrictions and payback instructions than other types of unsecured loans.

•   Credit cards Like a personal credit line, credit cards are a type of revolving loan that lets you access money up to a certain limit as you need it and only pay interest on the amount you borrow. While secured credit cards are available, most consumer cards do not require collateral to access a line of credit in this way.

Why Choose an Unsecured Personal Loan?

Here’s a look at some of the benefits of unsecured personal loans.

•   Fast processing time It often doesn’t take long to get the lump sum of money in your hands — often just a few days or so.

•   Consistent payments Personal loans are a type of installment loan, which means payments will be fixed and follow a set schedule.

•   Less costly than credit cards With good credit, interest rates on unsecured personal loans are typically lower than interest rates on credit cards.

•   Flexibility An unsecured personal loan can be used for almost any purpose, including credit card consolidation, a large purchase (like a kitchen appliance), a wedding, travel, medical expenses, home repairs, and more.

•   No collateral You don’t need to put anything of value at risk of repossession in order to secure the loan.

How to Apply for an Unsecured Personal Loan

Before you apply for an unsecured personal loan it’s a good idea to check your credit score, since it will play a role in your loan eligibility and interest rate.

Next, you’ll want to research and compare lenders, including banks, credit unions, and online lenders. It can be a good idea to compare loan amounts, interest rates, terms, and fees. Also check loan requirements, if they are available. Some lenders have a minimum credit score or income requirements.

In some cases, you may be able to pre-qualify for a personal loan, which lets you see the loan terms you may qualify for. This involves a soft credit check, which won’t impact your credit.

Once you find a loan you like, it’s time to officially apply. Often, you can do this online, though some lenders may require you to apply in person. Either way, you’ll need to provide personal and financial information (such as your name, home address, and employment information). In addition, you may need to provide the following documents:

•   State-issued photo ID

•   Proof of residence

•   Proof of income (like a bank statement or pay stub)

•   Tax return

Once you submit your application, you may receive a decision within a few minutes or a few days, depending on the lender. In some cases, the process may take a week or more.

What Lenders Look for in Unsecured Loan Applications

If you’re applying for an unsecured loan, lenders tend to look for the following, among other factors:

•   A strong credit score. While some people with a score of 580 or higher can qualify for a loan, most lenders look for a score of 700 or above to start to offer their most favorable interest rates and terms to lenders.

•   A favorable credit history. In other words, prospective lenders want to know that you’ve handled debt responsibly in the past. If you have events like bankruptcy in the past, a lender may hesitate or charge you higher interest rates.

•   Financial factors. Lenders will want to see that your earning power and debt-to-income ratio, or DTI, are in the right balance to allow for repayment of the loan.

Unsecured vs Secured Personal Loans: Key Differences

The key difference between unsecured and secured personal loans is that, with a secured loan, you provide a form of collateral to secure the loan. This could be money in the bank, a vehicle, investments, or art and collectibles. The idea is that the lender knows they could claim that item if you were to default on the loan.

This makes lending less risky for them. For this reason, it could help a loan seeker who has a less than ideal credit history qualify, even if they can’t access an unsecured loan. With an unsecured loan, you don’t put up any collateral. Instead, factors like your credit history, income, and assets typically reassure the lender that you are not a risky borrower.

The Takeaway

For some of life’s many curveballs — or opportunities — the occasional need for an unsecured personal loan might come up. Unlike a secured loan (like an auto loan or mortgage), an unsecured personal loan doesn’t require you to provide anything of value to guarantee it. You qualify based only on your ability to repay the borrowed amount to the lender.

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 do I need for an unsecured personal loan?

According to the credit bureau Experian®, you need at least a credit score of 580 to qualify for an unsecured personal loan, and a score of 700 or higher to get the most favorable rates and terms.

How much can I borrow with an unsecured personal loan?

Unsecured personal loans can offer a lump sum of anywhere from $1,000 to $100,000 or even more, depending on the lender’s guidelines and the borrower’s creditworthiness.

What are the disadvantages of unsecured loans?

Disadvantages of unsecured loans for borrowers can be that they may be harder to qualify for or charge higher interest rates than secured loans. The reason: They may be riskier for lenders, since if the borrower defaults, the lender doesn’t have a form of collateral to claim and use to offset their loss.

How long does it take to get approved for an unsecured loan?

The timing of getting approval for an unsecured loan can vary depending on the borrower and the lender. At its fastest, it could happen within a day. At the other end of the spectrum, it might take a week or two.

Can I pay off an unsecured loan early?

Yes, you can usually pay off an unsecured loan early. This can help you save on interest fees, but check your lender’s policies. You might owe what’s known as a prepayment penalty, a fee which goes to the lender. This feel helps compensate the lender for the loss of the previously projected interest they would have collected over the life of the loan.

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-Q225-038

As the cost of college continues to rise, many students turn to private student loans to help cover expenses not met by federal aid. However, securing these loans can be challenging without a strong credit history or steady income. That’s where parents often come in — as cosigners.

While cosigning can help a student access the funding they need, it also comes with serious financial responsibilities. Keep reading to learn the key considerations parents should weigh before agreeing to cosign a student loan.

Why Are Student Loans Cosigned So Often?

It’s no secret that the cost of college education has skyrocketed. Consider these statistics:

•   The average cost of college has doubled since the year 2000.

•   The current average cost for one year of college at a public institution is $38,270, including living expenses. Average tuition and fees at four-year in-state colleges is $9,750; for out-of-state students, it’s $28,386 per year.

•   For a private, nonprofit university, that number rises to $56,628 on average, with tuition and fees accounting for $38,421 of that sum.

There are many kinds of funding and different types of student loans to contemplate when budgeting for college. When savings, federal student loans, federal work-study, and scholarships or grants can’t fill the gap, students may look to private lenders to help them cover the rest.

Unfortunately, students just starting out usually don’t have the credit history needed to get a loan from a private lender, so cosigners sometimes step in.

But do students have to have a cosigner for a private student loan? Almost always. Since many lenders won’t lend money to young adults with no or little credit history, they typically require cosigners. Roughly 90% of all private undergraduate student loans have a cosigner.

Recommended: A Complete Guide to Private Student Loans

What Are the Downsides to Cosigning My Child’s Loan?

If you’re looking to privately fund your child’s education costs, it means you likely need the help to pay for college, just like many Americans do. But cosigning for your child’s private student loan is not without potential repercussions. Think over the following:

•   When wondering if you should cosign a student loan, consider your relationship with your child. If something goes wrong — missed payments, extended unemployment, or worse, default — the potential for financial stress could create the possibility of misunderstandings and hurt feelings. If your relationship with your child is already tenuous, bringing financial stress into it will likely not help.

•   Cosigning could put your own finances at risk. You may have the most responsible young adult in the whole state, but if something goes awry and the loan goes into default, the lender may sue you or hire a collection agency to try to recoup the debt.

A student loan default might also tarnish your credit score. Simply signing the loan also affects your score. Even if you’re not the one making payments, you’re still responsible for the loan, according to the major credit bureaus.

Recommended: What Is a Credit Bureau?

What Are Alternatives to Cosigned Loans?

Do parents have to cosign student loans? Not necessarily. Below are some options to think over instead of cosigning your child’s student loans.

Fill Out the FAFSA®

Filling out the Free Application for Federal Student Aid (FAFSA®) is the first step to figuring out how much federal (and frequently state) financial assistance your child is eligible for. You’ll add your financial information that will determine the amount of federal assistance, which includes Direct Subsidized Loans, Direct Unsubsidized Loans, and other student aid from the federal government, like grants and work-study.

Some states and colleges also base merit aid on FAFSA information, so the application is an important one for all types of financial aid, not just federal.

Help Them Establish Their Credit Score

There are also some other pathways to consider when trying to find loans without a cosigner. One good idea is to have your child start building their credit history. A credit score is typically enhanced over time as the record of their successful payments grows, along with other factors like their outstanding debt, credit mix, and more. A couple of pointers:

•   Your student might start by either getting a secured credit card at a credit union or other financial institution, then showing they can make timely monthly payments on a purchase.

•   If your student is trustworthy and mature, you could also consider adding them as an authorized user to a credit card you already have. You’ll be responsible for making the monthly payments, but they could benefit from your financial behavior.

Look into Scholarships

The FAFSA will help colleges determine what federal student aid, scholarships, and grants your child might qualify for, but don’t let your student stop there.

Merit scholarships come in all sizes and from diverse sources, including local and national organizations, heritage associations, and various writing and other contests sponsored by nonprofits and other organizations. It might help to look at groups that your family might be closely associated with, such as unions, professional associations, or alumni organizations.

Keep in mind that your child can apply for scholarships while they are still in college, because some are tied to college majors, and your student is likely to have settled on a major after the first year or two. This could open up scholarship options that couldn’t be considered before they declared a major.

Create a Budget

You might also be able to forego cosigning a student loan by making strategic decisions about education costs. Can your student reduce the overall cost of college by ditching the meal plan, living off campus, or even attending a significantly less expensive college?

Or, instead of paring down expenses, maybe your student could consider boosting their income to avoid the need for a cosigner on a student loan. One idea might be to start a low-cost side hustle. Another could be to take a year off to work — this may be enough to close the gap, avoiding the need for a loan altogether.

Consider Parent Loans

Parents who don’t mind shouldering more of the cost can also take out their own federal student loans with the Direct PLUS Loan, sometimes referred to as a “parent PLUS loan.”

Even though your student benefits from the loan, they are not the borrower, and you’ll be solely responsible for paying it back. Some parents may consider working out a repayment arrangement between themselves and their student. If this will be the expectation, however, it’s a good idea to discuss the arrangement with your student before taking out this type of loan.

Direct PLUS Loans can also be taken out by graduate or professional students. Whether a parent or a graduate student, there is a downside for the borrower. The interest rate for Direct PLUS Loans is often higher when compared to other federal student loans — 9.08% for the 2024-2025 school year versus 6.53% for Direct Subsidized Loans and Direct Unsubsidized Loans.

Recommended: Comparing Subsidized vs Unsubsidized Loans

The Takeaway

Deciding whether to cosign on a student loan is a significant financial commitment that requires careful consideration. While cosigning can help a student qualify for a loan and potentially secure better terms, it also means the parent is equally responsible for repayment.

If a parent is not wanting to cosign, students can look into other financing options, as well. This includes cash savings, scholarships and grants, federal student loans, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What does it mean to cosign a student loan?

Cosigning a student loan means a parent or other adult agrees to take equal responsibility for the loan. If the student fails to make payments, the cosigner is legally obligated to repay the debt.

Why might a student need a cosigner for a loan?

Many students have little or no credit history or income, which can make it hard to qualify for a private student loan on their own. A cosigner with good credit helps improve their chances of approval and may result in lower interest rates.

What are the risks of cosigning a student loan?

The biggest risk is that if the student misses payments, the cosigner’s credit could be damaged, and they would be responsible for repaying the loan. It can also affect the cosigner’s ability to qualify for other credit, like a mortgage or car loan.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

SOISL-Q225-016

The average American carries about $6,455 in credit card debt as of early 2025, and that figure is up by $200 year over year, according to TransUnion®, one of the major credit bureaus.

If you’re struggling with credit debt, whether it’s higher or lower than that average figure, one method to consider is taking out a personal loan (ideally with a lower rate than you’re paying on your credit cards) and using the funds to pay off your credit card debt. If you’re currently paying off multiple cards, this approach also simplifies repayment by giving you just one bill to keep track of and pay each month.

Still, there are pros and cons to consider if you’re thinking about getting a personal loan to pay off credit cards. Read on to learn more.

How Using a Personal Loan to Pay Off Credit Card Debt Works

Personal loans are a type of unsecured loan. There are a number of uses of personal loans, including paying off credit card debt. Loan amounts can vary by lender and will be paid to the borrower in one lump sum after the loan is approved. The borrower then pays back the loan — with interest — in monthly installments that are set by the loan terms. Some details to consider:

•   Many unsecured personal loans come with a fixed interest rate (which means it won’t change over the life of the loan), though there are different types of personal loans.

•   An applicant’s interest rate is determined by a set of factors, including their financial history, credit score, income, and other debt.

•   Typically, the higher an applicant’s credit score, the better their interest rate will be, as the lender may view them as a less risky borrower. Lenders may offer individuals with low credit scores a higher interest rate, presuming they are more likely to default on their loans.

•   When using a personal loan to pay off credit card debt, the loan proceeds are used to pay off the cards’ outstanding balances, consolidating the debts into one loan. This is why it’s also sometimes referred to as a debt consolidation loan. Ideally, the new loan will have a lower interest rate than the credit cards. By consolidating credit card debt into a personal loan, a borrower’s monthly payments can be more manageable and cost less in interest.

•   Using an unsecured personal loan to pay off credit cards also has the benefit of ending the cycle of credit card debt without resorting to a balance transfer card. Balance transfer credit cards can offer an attractive introductory rate that’s lower or sometimes even 0%. But if the balance isn’t paid off before the promotional offer is up, the cardholder could end up paying an even higher interest rate than they started with. Plus, balance transfer cards often charge a balance transfer fee, which could ultimately increase the total debt someone owes.

Recommended: Balance Transfer Credit Cards vs Personal Loans

Understanding Credit Card Debt vs. Personal Loan Debt

At the end of the day, both credit card debt and personal loan debt are both simply money owed. However, personal loan debt is generally less costly than credit card debt. This is due to the interest rates typically charged by credit cards compared to those of personal loans. Also, some people can get trapped by paying the minimum amount on their credit card, which leads to escalating debt as the high interest rate kicks in.

The average credit card interest rate was 24.20% in early 2024. Meanwhile, the average personal loan interest rate was about half that. Given this difference in average interest rates, it can cost you much more over time to carry credit card debt, which is why taking out a personal loan to pay off credit cards can be an option worth exploring.

Keep in mind, however, that the rate you pay on both credit cards and personal loans is dependent on your credit history and other financial factors.

Pros and Cons of Using Loans for Credit Card Debt

While on the surface it may seem like taking out a personal loan to pay off credit card debt could be the best solution, there are some potential drawbacks to consider as well. Here’s a look at the pros and cons:

How Frequently Can You Use Personal Loans to Pay Off Credit Card Debt?

Taking out a personal loan to pay off credit cards generally isn’t a habit you want to get into. Ideally, it will serve as a one-time solution to dig you out of your credit card debt.

Applying for a personal loan will result in a hard inquiry, which can temporarily lower your credit score by a few or several points. If you apply for new loans too often, this could not only drag down your credit score but also raise a red flag for lenders.

Additionally, if you find yourself repeatedly re-amassing credit card debt, this is a signal that it’s time to assess your financial habits and rein in your spending. Although a personal loan to pay off credit cards can certainly serve as a lifeline to get your financial life back in order, it’s not a habit to get into as it still involves taking out new debt.

5 Steps to Successfully Pay Off Credit Cards with a Personal Loan

The steps for paying off a credit card with an unsecured personal loan aren’t particularly complicated, but having a plan in place is important. Here’s what you can expect.

Getting the Whole Picture

It can be scary, but getting the hard numbers — how much debt is owed overall, how much is owed on each specific card, and what the respective interest rates are — can give you a sense of what personal loan amount might be helpful to pay off credit cards. You can also use an online personal loan calculator to see how things stack up in detail.

Choosing a Personal Loan to Pay off Credit Card Debt

These days, you can do most — or all — personal loan research online. A personal loan with an interest rate lower than the credit card’s current rate is an important thing to look for. Just be sure you are looking at the loan’s annual percentage rate, which tallies the interest rate and other charges (such as origination fees) to give you a truer picture of the cost of the loan.

Paying Off the Debt

Once an applicant has chosen, applied for, and qualified for a personal loan, they’ll likely want to immediately take that money and pay off their credit card debt in full.

Be aware that the process of receiving a personal loan may differ. Some lenders will pay off the borrower’s credit card companies directly, while others will send the borrower a lump sum that they’ll then use to pay off the credit cards themself.

Hiding Those Credit Cards

One potential risk of using a personal loan to pay off credit cards is that it can make it easier to accumulate more debt. The purpose of using a personal loan to pay off credit card debt is to keep from repeating the cycle. Consider taking steps like hiding credit cards in a drawer and trying to use them as little as possible.

Paying Off Your Personal Loan

A benefit of using a personal loan for debt consolidation is that there is only one monthly payment to worry about instead of several. Not missing any of those loan payments is important — setting up autopay or a monthly reminder/alert can be helpful.

Creating a Budget for Successful Debt Payoff

Before embarking on paying off credit card debt, a good first step is making a budget, which can help you better manage their spending. You might even find ways to free up more money to put toward that outstanding debt.

If you have more than one type of debt — for instance, a personal loan, student loan, and maybe a car loan — you may want to think strategically about how to tackle them. Some finance experts recommend taking on the debt with the highest interest rate first, a strategy known as the avalanche method. As those high interest rate debts are paid off, there is typically more money in the budget to pay down other debts.

Another approach, known as the snowball method, is to pay off the debts with the smallest balances first. This method offers a psychological boost through small wins early on, and over time can allow room in the budget to make larger payments on other outstanding debts.

Of course, for either of these strategies, keeping current on payments for all debts is essential.

Where Can You Get a Personal Loan to Pay off Credit Cards?

If you’ve decided to get a personal loan to pay off credit cards, you’ll next need to decide where you can get one. There are a few different options for personal loans: online lenders, credit unions, and banks.

Online Lenders

There are a number of online lenders that offer personal loans. Many offer fast decisions on loans, and you can often get funding quickly as well.

While securing the lowest rates often necessitates a high credit score, there are online lenders that offer personal loans for those with lower credit scores. Rates can vary widely from lender to lender, so it’s important to shop around to find the most competitive offer available to you. Be aware that lenders also may charge origination fees.

Credit Unions

Another option for getting a personal loan to pay off credit cards is through a credit union. You’ll need to be a member in order to get a loan from a credit union, which means meeting membership criteria. This could include working in a certain industry, living in a specific area, or having a family member who is already a member. Others may simply require a one-time donation to a particular organization.

Because credit unions are member-owned nonprofits, they tend to return their profits to members through lower rates and fees. Additionally, credit unions may be more likely to lend to those with less-than-stellar credit because of their community focus and potential consideration of additional aspects of your finances beyond just your credit score.

Banks

Especially if you already have an account at a bank that offers personal loans, this could be an option to explore. Banks may even offer discounts to those with existing accounts. However, you’ll generally need to have solid credit to get approved for a personal loan through a bank, and some may require you to be an existing customer.

You may be able to secure a larger loan through a bank than you would with other lenders.

Recommended: How to Lower Your Credit Card Debt Without Ruining Your Credit Score

Avoiding the Debt Cycle After Consolidation

Once you’ve paid off your credit card debt, you don’t want to fall back into the same habits that got you in trouble in the first place. Some guidelines:

•   Budget carefully. Try a few different types of budgets until you settle on one that really works for you. Plenty of banks also offer tech tools to help you track the money that’s coming in and going out.

•   Speaking of money going out: Watch your spending carefully. Check in with your money regularly, review your spending habits at least monthly, and scale back as needed.

•   Build an emergency fund (even funneling $25 per paycheck is a smart start) so you can cover unexpected expenses like a big medical bill vs. using your credit card.

•   Avoid credit card spending as much as possible. Use your debit card whenever possible to keep spending in check and avoid interest charges.

The Takeaway

High-interest credit card debt can be a huge financial burden. If you’re only able to make minimum payments on your credit cards, your debt will continue to increase, and you can find yourself in a vicious debt cycle. Personal loans are one potential way to end that cycle, allowing you to pay off debt in one fell swoop and hopefully replace it with a single, more manageable loan.

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 to pay off credit cards?

Yes, it is possible to use a personal loan to pay off credit cards. The process involves applying for a personal loan (ideally one with a lower interest rate than you are paying on your credit cards) then using the loan proceeds to pay off your existing credit card debt. Then, you will begin making payments to repay the personal loan.

How is your credit score impacted if you use a personal loan to pay off credit cards?

When you apply for a personal loan, the lender will conduct what’s known as a hard inquiry. This can temporarily lower your credit score. However, taking out a personal loan to pay off credit cards could ultimately have a positive impact on your credit if you make on-time payments, if the loan improves your credit mix, and if the loan helps you pay off your outstanding debt faster.

What options are available to pay off your credit card?

Options for paying off credit card debt include: Taking out a personal loan (ideally with a lower interest rate than you’re paying on your credit cards) and using it to pay off your balances; using a 0% balance transfer credit card; and exploring a debt payoff strategy like the snowball or avalanche method. Other ideas: Consult with a credit counselor, or enroll in a debt management plan.

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-Q225-037

Your personal loan agreement is the document that contains everything you need to know about the deal you’re making with your lender, including your rights and responsibilities as well as theirs. It’s a fairly long and complex form, but breaking it down can make it easier to understand.

Here, take a closer look at personal loan agreements.

Personal Loan Agreements Defined

A personal loan agreement, as mentioned above, is a document that details exactly what is being agreed to on both sides of a personal loan — lender and borrower. At the very least, it will state how much money is being loaned and the terms and conditions of the borrower’s repayment responsibilities.

But what about a personal loan that is not with a traditional lender? Private lenders can be individuals or organizations that make loans to individuals, sometimes without the qualification requirements of traditional lending institutions. A private personal loan agreement is drafted as part of a private personal loan — one made between a private lender and a borrower.

Any personal loan agreement is a legally binding document, so it’s important to understand it in full before you apply your signature.

Key Elements of a Personal Loan Agreement

Say you’ve applied for a personal loan. If you qualify, you’ll move along to a personal loan agreement. Among the key elements of a personal loan agreement are:

•   Parties involved: The lender and borrower, including their legal names and addresses.

•   Loan amount: The amount of money being borrowed, also known as the principal.

•   Interest rate: This is typically expressed as an annual percentage rate (APR), which reflects the total cost of borrowing over a year.

•   Repayment terms: How and when the loan will be repaid, including the payment schedule, payment frequency, and loan term.

•   Default provisions: The consequences of failing to make payments, such as late fees and potential actions the lender can take. Also, you may want to be sure severability clauses are spelled out, stating what happens if one aspect of the agreement is deemed unenforceable.

•   Governing law: Specify which jurisdiction’s laws will govern the agreement in the event that there are disputes.

•   Signatures and date: These are needed from both the lender and borrower.

You might also include details on any loan collateral, late and early payment (prepayment) penalties, and guarantors or cosigners, as needed.

Why Is a Loan Agreement Needed?

A personal loan agreement is essentially a protective document. It protects both the lender and the borrower by laying out, in clear terms, exactly what is being agreed to. If either party fails to uphold the agreement, action can be taken — such as the lender seizing any assets offered as collateral or sending the account to collections — both of which, obviously, would be bad for the borrower.

But the document works both ways. Lenders, too, are subject to lender liability and can be taken to court if they fail to uphold their end of the loan agreement. Although these cases are far less common than borrower default, the loan agreement is a document that can be used for the borrower’s protection as well.

How to Write a Personal Loan Agreement in 5 Steps

Here are the usual steps to writing a personal loan agreement.

1. Decide Whether to DIY It or Hire a Lawyer

Loan paperwork is often created by the lending institution. For private loans, depending on the specifics of your loan and situation, you could write up a simple agreement by hand or draft it on your computer and then print it out for signing, if you are working toward a private loan. Or you might download a template from a reputable site, which can be a popular option. These are often free or are sometimes available for a small fee.

However, if the loan is complicated or you don’t want to handle the agreement yourself, you could look into hiring a lawyer to draw up the paperwork. Either way, a personal loan agreement will be a legally binding arrangement. Hiring a lawyer will likely be a costlier proposition.

2. Gather the Necessary Personal Details

You will need the legal names and addresses of both parties. This ensures the lender can’t ask you for anything beyond the borrowed principal (plus interest, which will also be listed).

3. Agree to and Spell Out the Loan Terms

The loan agreement should list the payments that will be expected each month and the expected date of the conclusion of the loan term.

The interest rate for the personal loan should also be on the personal loan agreement, likely expressed as an APR, which shows what percentage of the loan principal you’ll end up paying back in the course of one year including interest and any additional fees that may be packaged into the loan.

The interest rate will vary based on your credit score and other financial factors. If you have decent credit, you’ll likely be able to qualify for a personal loan. But generally speaking, the higher your score, the lower your rate.

Recommended: Personal Loan Calculator

4. List Payment and Legal Details

A personal loan agreement should also include the following, as noted above:

•   The loan agreement may list which types of payment are acceptable, such as check, bank transfer, or credit card.

•   The personal loan contract should also list specific repayment conditions, including when payment is due and whether or not additional principal can be applied without penalty.

•   A complete personal loan agreement should include details on how any disputes will be handled between the parties involved.

•   Some personal loan documents may include the option to change your loan’s term (the period over which the loan is repaid).

•   Personal loan contracts in the United States should stipulate which state’s laws will be used to govern and interpret the agreement if the borrower lives in a different state than the lender is headquartered.

•   Severability is a clause that states that even if one part of a contract is found to be unenforceable or otherwise rendered null and void, the remainder of the agreement will still hold.

•   Penalties associated with the personal loan, such as any late fees that may be assessed, at what point the loan will go into arrears or default, or other scenarios, should be listed in the contract as well.

5. Sign the Document

Finally, the contract for loaning money must be signed by the borrower and the lender in order to be made legally binding.

Recommended: Comparing Personal Loans vs Business Loans

Other Personal Loan Documents

Along with the signed personal loan agreement, other typical personal loan requirements include the following:

Proof of Identity

Your driver’s license or some equivalent form of photo ID will likely be necessary in order to verify your identity.

Income Verification

Lenders will consider your income when qualifying you for a loan — after all, they have good reason to be interested in whether or not you’ll be able to repay the debt. Along with asking you to list your annual income, verifying documents such as tax returns may also be required.

Proof of Address

In order to prove your residence, and therefore eligibility for any type of personal loan, you may need to provide utility statements, bank statements, or other official documents.

The Takeaway

If you’re considering a personal loan, reading the loan agreement in depth is a good way to understand for sure what you’re agreeing to. That loan agreement will contain many details about funds borrowed and how they will be repaid, and it serves to protect both the lender and the borrower.

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

Does a personal loan agreement need to be notarized?

No, a personal loan agreement does not need to be notarized to be legally binding — it simply needs to be signed by each party to the agreement.

What is a private personal loan agreement?

A private personal loan agreement is the binding legal contract between a borrower and a private lender for a personal loan.

Why do you need a loan agreement?

The personal loan agreement serves to outline the specific terms of the loan and protect both parties in case either fails to uphold the agreement.

Can a personal loan agreement be legally enforced?

Yes, a written and signed agreement for a loan can be legally enforced. It’s a binding contract.

What happens if a borrower defaults on a personal loan agreement?

If a borrower defaults on a personal loan, they will face negative impacts to their credit score, potential legal action from the lender, and they might find that their account is turned over to collections. They might also be charged late fees and a higher interest rate on the remaining balance due.

Photo credit: iStock/Chaay_Tee

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.

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An estimated 20% of Americans have $10,000 or more in credit card debt.

Five-figure credit card debt, and the interest that accrues along with it, can feel overwhelming. It’s the kind of debt that keeps people up at night, and prevents them from pursuing their other financial goals.

But, that debt doesn’t have to stick around forever. With a strategy, chipping away at a $10,000 in credit card debt is achievable. Here are some options for how to pay off $10,000 in credit card debt.

Tips for Paying Off $10,000 in Credit Card Debt

Paying down $10,000 in credit card debt takes discipline and time. These tips and tools could help speed up the journey toward debt freedom.

Consider a Side Hustle

If your budget doesn’t have much wiggle room to make extra payments toward credit card debt, you might consider finding ways to generate more income. Starting a side hustle could be a powerful way to pay down a $10,000 credit card debt faster. Whether it’s grabbing a job in the gig economy or taking a catering job on the weekends, you can put those paychecks toward your credit card debt.

Ask for a Raise

If time is limited for a side hustle, think of how you could make more money in your current role. Is it time to ask for a raise, for instance?

Similarly, switching jobs may land you a higher salary. Just make sure that extra income goes toward debt payoff, and not lifestyle creep.

Switch to Cash

When you’re paying down $10,000 in credit card debt, it’s important to avoid accruing a higher balance. Adding more debt can not only feel discouraging, it can extend your payoff timeline.

As you tackle paying down debt, consider avoiding any further spending on credit cards. That can take the form of paying for things in cash, or using a debit card where you can only spend what you actually have. Making a switch to cash means you’re less likely to add to your burden of debt.

Debt Management Plans

While tips and tricks may help you pay down $10,000 in credit card debt, you may have to consider a larger overall strategy to move you towards payoff. Having a debt management plan in place can take some of the pressure away and could put you on a track toward paying off debt faster.

Two popular methods to accelerate debt repayment include the snowball and avalanche method.

Snowball Method

The snowball method prioritizes paying off small debts first and working your way up. Here’s how:

1.    Make the minimum monthly payments on all debts.

2.    Take inventory of all your debts and order them from lowest outstanding balance to highest.

3.    Put any extra cash toward the smallest balance debt.

4.    Repeat this until the lowest debt is paid off.

5.    Next, move onto the next lowest debt, adding the surplus cash from step 2 to this card’s monthly payments.

6.    Continue to repeat this process, scaling up to the high-balance debts once you pay off the lower ones.

While this method can seem counterintuitive because of the interest that high balances can generate, starting off with small wins has psychological benefits for some. Having those wins early on may motivate you to move forward.

If you tend to be more disciplined and don’t mind playing the long game, you might prefer the debt avalanche method to pay off $10,000 in debt. Here’s how to deploy the avalanche method:

1.    Make minimum payments on all debts.

2.    Compile all your debt, and order it by interest rate from highest to lowest.

3.    Put any extra cash toward the debt with the highest interest rate.

4.    Repeat until the highest-interest debt it paid off.

5.    Move onto the debt with the next-highest interest rate. Put any extra cash toward this balance until it’s paid off.

6.    Continue this process, prioritizing the highest interest debt first, until all balances are settled.

Typically, the debt avalanche saves more money in interest payments in the long run. However, it can take time to see a win with this method, as opposed to debt snowball.

Recommended: Creating a Credit Card Debt Elimination Plan

Credit Card Debt Forgiveness

Credit card debt forgiveness is not as simple as waving a magic wand at your balances and watching them disappear. Forgiveness does not mean the debt’s completely erased, and it comes with its own drawbacks.

Credit card debt forgiveness only becomes an option when a cardholder stops paying their debt and the credit card company sells the outstanding balance to a debt collector. From there, you can negotiate with the debt collector as to how much debt to repay.

Debt collectors typically buy debts for far less than their face value, and thus are willing to recuperate just a portion of the initial amount owed. For example, if you owe $10,000 in credit card debt and it goes to collections, you may be able to negotiate to settle the debt for just $5,000. That payment may be a lump sum or small payments over time.

While credit card debt forgiveness means paying less than the total owed, it has a fair share of drawbacks. Neglecting credit card debt can wreak havoc on a person’s credit score, and you’ll still need to pay some portion of the debt.

Additional Options for Paying Off Debt

Credit card debt forgiveness isn’t the only route toward paying off $10,000 in credit card debt. Depending on your situation, one of the following solutions may work.

Balance Transfers

Some credit card companies allow cardholders to make credit card balance transfers. That means you transfer the outstanding balance from one credit card to another, often with an introductory low interest rate or no interest.

Balance transfers do come with fees, but depending on how much you owe and how much you could save on interest, it could be worth it in the long run. However, keep in mind the interest rate the balance transfer offers may be for a limited time. You’ll want to pay off the remaining balance before the rate rises, or you could owe more than you did before the transfer.

Personal Loans

There are a number of common uses for personal loans, including paying off credit card debt. Often, a personal loan will have a lower interest rate than credit cards, which could help you pay down your debt faster and save on interest. If you’re struggling to figure out how to pay off $10,000 in credit card debt, consolidating multiple balances into a single loan also may streamline the process.

Your credit score can impact if you get approved for a personal loan, as well as what interest rate you receive. If you have a less than stellar credit score, you may not get approved.

Using a personal loan calculator can help you determine if this strategy will net you savings and, if so, how much.

Recommended: Types of Personal Loans

The Takeaway

Paying down $10,000 in debt might not be easy, but with the right strategies, it is possible. This could mean adopting an aggressive payoff method or looking for additional options to pay down the debt, like personal loans.

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

How do I get out of credit card debt with high interest?

You have options when it comes to paying off credit card debt. One to consider is the avalanche method, which involves paying off the card with the highest interest rate first while making minimum payments on other cards. Then, move on to the debt with the next-highest interest rate, and continue the process until you have no more balances.

Should I seek credit card forgiveness?

Credit card forgiveness isn’t common. That said, you may be able to negotiate with your creditor to reduce the amount you owe, which can help relieve some of your debt burden.

How long will it take to pay off $10k in credit card debt?

The length of time it will take you to pay off $10,000 in credit card debt depends largely on the amount of your monthly payment and your card’s APR. Consider this example: If you have an APR of 21.95%, and make monthly payments of $500, it will take you 26 months to pay off the debt. If you can swing a larger monthly payment of $1,000, it would take you 12 months.

Photo credit: iStock/ArtistGNDphotography

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.

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