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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.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

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.

Recommended: Balance Transfer Credit Cards vs Personal Loans

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.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. 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

Debt consolidation is a debt payoff strategy that involves taking out a new loan (often a personal loan) to pay off high-interest debts in an effort to streamline monthly payments and save money on interest.

While it can be challenging to get a debt consolidation loan with a bad credit history, you aren’t necessarily out of luck. Some lenders look at factors beyond credit score, such as your income and job history. There are also several actions you can take to increase your odds of getting approved for a debt consolidation loan. Here’s what you need to know.

How to Get a Debt Consolidation Loan With Bad or Average Credit

Even with fair or poor credit, lenders may still consider you for a debt consolidation loan. Here are a few ways to increase your chances of getting approved.

Check Your Credit Reports

Before you apply for a debt consolidation loan, it’s a good idea to comb through your credit reports to see if there are any errors or inaccuracies that could be negatively impacting your score. You’re entitled to a free credit report every week from each of the three major credit bureaus — Equifax®, Experian®, and TransUnion® — at AnnualCreditReport.com.

If you notice any incorrect information (such as wrong accounts, incorrectly reported payments, inaccurate credit limits, or partial information) on any of your reports, you’ll want to reach out to the appropriate credit union and file a dispute.

Reading your credit reports can also give you a sense of your overall credit health and see where there may be areas for improvement.

Shop around

Not all lenders treat bad credit the same way. Some specialize in working with borrowers with lower scores, while others may be more flexible in their qualification criteria. Explore loan options from banks, credit unions, and online lenders. If possible, try to prequalify online. This can give you an idea of what rates and terms you may be able to get but only requires a soft credit pull, which won’t impact your credit score.

Apply with a Cosigner

If you have a friend or family member with good credit willing to cosign the loan, your approval chances can improve significantly. A cosigner agrees to repay the loan if you default, reducing the lender’s risk. Keep in mind, though, that missed payments will impact both your credit and your cosigner’s, so it’s a serious commitment for both parties.

Provide Collateral

Secured personal loans, which require you to provide collateral (such as a vehicle or property) to back up the loan, can be easier to get if you have bad or average credit. The downside is that you’re putting your asset on the line. If you run into trouble repaying the loan, the lender can seize the collateral to get their money back.

Build Your Credit Score

If you’re not in a hurry to consolidate your debt, you may want to focus on building your credit profile before you apply for a consolidation loan. Steps that can help include paying your bills on time, reducing credit card balances, not taking on any new debt, and (as mentioned) addressing any errors on your credit report.

Even small improvements in your credit file can help you qualify for a better interest rate on a debt consolidation loan.

Where to Get a Debt Consolidation Loan with Bad Credit

Trying to find consolidation loans with a bad credit history can feel overwhelming. Here are some good places to look.

Local Banks and Credit Unions

Traditional banking institutions tend to be stringent in their lending criteria. However, if you already have a relationship with a local bank or credit union, they may be willing to work with you based on your overall financial profile, and not simply look at your credit score. Banks and credit unions are also more likely to offer secured loans, which may help you get a better rate.

Online Debt Consolidation Lenders

Online lenders tend to have more flexible qualification criteria for personal loans than banks, and can be a good place to look for debt consolidation loans with bad credit. These alternative lenders also typically offer a simpler application process and are faster to fund than traditional lenders. Just keep in mind that some online lenders charge relatively high rates for borrowers with bad credit, which can make consolidating debt less appealing.

To make sure consolidating debt is worthwhile, use an online debt consolidation calculator to see exactly how much you can save.

Payday Lenders

Payday loans can be easy to get when you have bad credit, but they’re not an ideal choice for consolidating debt. These loans generally come with sky high interest rates — often approaching 400% annual percentage rate (APR) — that can trap borrowers in a cycle of debt. Only consider payday loans as a last resort, and only if you’re certain you can repay the loan on time.

Peer-to-Peer Lending Platforms

Peer-to-peer lending platforms, such as Prosper, Upstart, and Kiva, match borrowers with individual investors willing to fund their loans. Potential lenders will often look at more than just your credit score, including employment status and income, which can make personal loans more accessible to borrowers with less-than-stellar credit.

Nonprofit Financial Assistance Programs

Though not technically a loan, some nonprofit credit counseling agencies offer debt management plans (DMPs), which are another way to consolidate debt with bad credit.

For a small fee, the agency will negotiate with your creditors to lower your interest rates and fees and establish a payment plan that works for you. They then consolidate your payments into one monthly amount. You make a single payment to the counseling agency, which distributes the funds to your creditors.

Pros and Cons of a Debt Consolidation Loan

Getting a consolidation loan to pay off debt isn’t a one-size-fits-all solution. It can be a powerful tool, but it also has its drawbacks.

Pros

•   Simplified payments: Instead of juggling multiple creditors, you’ll only have one monthly payment, which can make budgeting easier.

•   Lower interest rates: If you qualify for a loan with a better interest rate than your existing debts, you could save money in the long run.

•   Can help you rebuild credit: Timely payments on your new loan will help you create a positive payment history, which is a key factor in your credit scores.

•   Reduced stress: Managing a single loan is often less overwhelming, especially when paired with a structured repayment plan.

Cons

•   High interest for bad credit: If your credit is poor, the loan’s interest rate may be almost as high —or higher—than your current debts.

•   Added fees: Some loans come with origination fees, prepayment penalties, or other charges that add to your total debt.

•   Risk of default: Consolidating doesn’t eliminate your debt — it just reshapes it. If you continue spending without changing your financial habits, you could run into trouble repaying your consolidation loan.

•   Collateral risk: If you choose a secured loan and can’t keep up with payments, you risk losing your property or assets.

💡 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.

Debt Consolidation Alternatives

Debt consolidation isn’t your only debt payoff strategy. Depending on your circumstances, other solutions might be more cost effective or less risky.

Home Equity Loans

If you own a home and have built up significant equity, you may be able to take out a home equity loan or home equity line of credit (HELOC) to pay off your existing debts. These loans typically have lower interest rates than unsecured personal loans. However, your home becomes collateral, which means that if you default, you could face losing it. Only consider this option if you’re confident in your ability to repay.

Balance Transfer Credit Cards

A balance transfer credit card allows you to move existing debt from one or more credit cards or loans to a new credit card, ideally one with low or a 0% introductory APR. If you can pay off your balance before the promotional rate expires, you could save significantly on interest. Just keep in mind that you typically need good or better credit to snag a 0% promotional rate.

DIY Debt Management Plans

If you want to tackle your debt on your own, start by making a list of all your existing debts, interest rates, and balances, then choose a strategy — such as the snowball or avalanche approach — to pay them down.

With the avalanche method, you make extra payments on the credit card with the highest interest rate first, while making minimum payments on the others. Once the highest-rate card is paid off, you funnel those extra funds toward the card with the next-highest rate, and so on. This strategy minimizes the amount of interest you’ll pay over time.

With the snowball method, you put extra payments toward the card with the smallest balance first, while making minimum payments on the others. When that card is cleared, you focus on paying off the next-smallest balance, and so on. This gives you quick wins and a psychological boost, which can help you stay motivated.

Debt Settlement

If you’re more than 90 days past due on a debt and suffering financial hardship, you might consider debt settlement. This is a strategy where you negotiate with your creditors to lower your debt in return for one lump sum payment. You can try this yourself or hire a debt settlement company, though the latter often charges high fees.

Just keep in mind that settling a debt can negatively affect your credit file, since settled accounts stay on your credit report for up to seven years. However, for those overwhelmed by debt, it may be a better option than facing ongoing collections or bankruptcy.

The Takeaway

Consolidating debt with a bad credit history can be challenging, but it’s not out of the realm of possibility. With the right strategy, you can streamline your payments, potentially reduce your interest rates, and get back on the path to financial stability.

Start by reviewing your credit reports, exploring all your options, and considering both the short-term benefits and long-term consequences of your decision. Whether through a personal loan, a debt management plan, or another method, the key is to take action and commit to improving your financial habits over time.

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

Can I qualify for a debt consolidation loan with a credit score under 600?

Yes, it’s possible to qualify for a debt consolidation loan with a credit score under 600, but options may be limited and interest rates could be high. Lenders view sub-600 credit as risky, so you may need to show proof of stable income or offer collateral. Some online lenders and credit unions have more flexible borrowing criteria. Comparing offers and considering a cosigner can also improve your chances of approval and more favorable terms.

Will applying for a debt consolidation loan hurt my credit score?

Applying for a debt consolidation loan can temporarily impact your credit score due to the hard inquiry during the application process. However, the effect is usually small and short-lived. If you’re approved and use the loan to pay off high-interest debt, it can positively impact your credit file over time by lowering your credit utilization and adding to your positive payment history.

How much can I borrow with bad credit?

With bad credit, you may still be able to borrow between $1,000 and $50,000. The exact amount you can get with a personal loan varies by lender and is influenced by factors like your debt-to-income ratio and employment history. Expect higher interest rates and possibly shorter repayment terms. Shopping around and considering secured loans or a cosigner can help you access better loan amounts and terms.

Is a personal loan a good way to consolidate debt?

A personal loan can be a good way to consolidate debt if it offers a lower interest rate than your existing debts. It can also simplify repayment by turning multiple payments into one fixed monthly payment. However, approval depends on your credit score and financial stability. If the loan has high fees or interest, it may not be worth it. Always compare offers and check the total repayment amount before committing.

What’s the best alternative to a debt consolidation loan if I’m denied?

If you’re denied a debt consolidation loan, alternatives include working with a credit counseling agency to set up a debt management plan (DMP), negotiating directly with creditors for lower payments, or considering a secured loan using collateral. A balance transfer credit card with a low or 0% promotional rate (if you qualify) can also be effective. In more serious situations, debt settlement or bankruptcy might be last-resort options. Each alternative has pros and cons, so it’s important to assess your financial situation carefully.

Photo credit: iStock/Vladimir Vladimirov

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-Q325-036

Paying down debt can be an important financial priority, but should you use your savings in order to do so? While it can be tempting to throw your full efforts into paying off debt, maintaining a healthy savings account for emergencies and saving for retirement are also important financial goals.

Continue reading for more information on why it may not always make sense to use savings to pay off debt and ideas and strategies to help you expedite your debt repayment without sacrificing your savings account.

The Case Against Using Savings to Pay Off Debt

While it can feel satisfying to watch your debt balance drop, using savings to achieve that can come with unintended consequences. It’s important to weigh the risks before depleting your savings for the sake of faster debt repayment.

Emergency Funds Provide Financial Security

One of the key arguments for not using savings to pay off debt is the importance of maintaining emergency savings. An emergency fund — typically three to six months’ worth of living expenses — provides a crucial financial cushion in the event of job loss, unexpected medical bills, or an urgent car or home repair. Without that buffer, you might be forced to run up high-interest credit card debt to get by, negating the benefits of having paid off previous debt.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Opportunity Cost of Using Savings

Using your savings to pay off debt means missing out on the opportunity to invest that money or let it earn interest in a high-yield savings account. This is especially relevant with low-interest debt, such as federal student loans, certain car loans, or mortgage balances. If you could earn more interest or investment returns than what you’re paying on your debt, paying off the debt early could potentially cost you money in the long run.

Every financial decision has an opportunity cost. It’s important to consider whether your money might be better utilized elsewhere.

When to Prioritize Paying Off Debt

In some situations, however, it could make sense to pay off debt rather than save money. Here are some scenarios where you may want to use your savings to pay off debt.

High-Interest Debt

Credit card debt is notorious for high interest rates. As of May 2025, the average credit card annual percentage rate (APR) was 22.25% Given the steep cost of these debts, it can be smart to prioritize paying off credit card debt over saving. The interest accruing can quickly outpace any gains from savings or investing, so tackling high-interest debt should usually be a top priority.

Source of Stress

Debt isn’t just a financial burden; it’s often an emotional one too. If your debt causes anxiety, sleep loss, or tension in your relationships, that emotional toll is worth considering. Prioritizing debt repayment to relieve stress and improve mental well-being can be just as valuable as financial gains.

Limiting Financial Flexibility

High debt payments can limit your cash flow and force you to delay important life goals, like owning a home, getting married, going back to school, or starting a family. For example, a high debt-to-income ratio can hinder your ability to qualify for favorable mortgage rates or even a mortgage at all. By paying off debt, you free up money in your budget that can later be redirected towards other goals.

When to Prioritize Saving

While paying down debt is important, there are also compelling reasons to focus on building your savings, especially if your debt isn’t urgent or costly.

Low-Interest Debt

If your debt comes with a relatively low interest rate, there may be less urgency to pay it off early. For example, if your mortgage has a 3.5% interest rate, and your retirement investments earn an average of 7%, you’re likely better off contributing to your retirement than accelerating debt payments.

In these cases, the debt is manageable and might even come with tax advantages. This gives you room to prioritize saving and investing instead.

Access to 401(k) Employer Match

If your employer offers a 401(k) match and you’re not contributing enough to get the full match, you’re essentially leaving free money on the table. A 100% match up to 6% of your salary, for example, is an immediate 100% return on investment. That’s far more than you’d save by paying off most debts faster.

In nearly every case, it makes sense to contribute enough to receive the full match before prioritizing additional debt payments.

No Emergency Savings

If you don’t have an emergency fund, it’s wise to build one before aggressively attacking your debt. Without savings, you’re vulnerable to any financial disruption, which could force you into more debt. Establishing a modest emergency fund — say $500 to $1,000 to start — can prevent future financial setbacks and give you some breathing room.

How to Start Paying Off Debt Without Dipping Into Your Savings

You don’t necessarily need to choose between savings and debt repayment — you can do both. Here’s how to get started on your debt without draining your savings account.

Make a Budget

Creating a budget is a crucial step towards effectively paying off debt — and the process is easier than it sounds. Simply gather the last several months of financial statements and use them to calculate your average monthly income and spending.

If you find that, on average, your spending is close to (or higher) than your earnings, you’ll want to find places to cut back. First look for monthly expenses you can cut completely, such as steaming services you rarely watch or membership to a gym you rarely use. Then consider ways to trim discretionary spending, such as eating out less, avoiding impulse purchases, and finding cheaper entertainment options. Any funds you free up can then be funneled towards debt repayment.

Establish a Debt Payoff Strategy

“Focus on paying off one debt at a time,” advises Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “If you spread your money out over many debt payments, your progress may not be as fast as you want. But by focusing on one goal at a time, you can see success sooner, and that can keep your motivation up.”

Two popular debt paydown strategies to consider:

•   Debt snowball: With this approach, you put extra money towards the debt with the smallest balance, while making minimum payments on all the other debts. When that debt is paid off, you move to the next-smalled debt, and so on until all debts are paid off. This method can deliver early wins and help keep you motivated to continue tackling your debt.

•   Debt avalanche: Here, you put extra money towards the debt with the highest interest rate, while paying the minimum on the rest. When that debt is paid off, you move on to the debt with the next-highest rate, and so on. This strategy helps minimize the amount of interest you pay, which can help you save money in the long term.

Consider Debt Consolidation

If you have multiple high-interest debts, you might consider using a personal loan to pay off your balances, a payoff strategy known as debt consolidation. Personal loans for debt consolidation typically have fixed interest rates, so your payments remain the same for the term of the loan. Rates also tend to be lower than credit cards. In addition, debt consolidating simplifies repayment by rolling multiple payments into one.

However, debt consolidation generally only makes sense if you can qualify for a rate that’s lower than what you’re currently paying on your debt balances. Before going this route, it’s helpful to use an online debt consolidation calculator to see exactly how much you can save by consolidating debt with a personal loan.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Look Into Balance Transfer

Another way to pay down credit card debt faster is by doing a balance transfer. This strategy involves moving debt from one or more credit cards to another, ideally with a lower or 0% introductory interest rate. This temporary reduction in the APR allows more of your monthly payments to go towards the principal, helping you pay down debt faster and potentially saving you money on interest charges.

Just keep in mind that if you can’t pay off your balance during the promotional period, you’ll be back to paying high rates again. Also these cards often charge a transfer fee, typically 3% to 5% of the transferred amount, which adds to your costs.

The Takeaway

So should you pay off debt or save money? The answer is that it depends. If you have at least a starter emergency fund and high-interest debt, it may make sense to prioritize paying your balances down, either through an avalanche or snowball plan, debt consolidation, or a balance transfer.

However, if you have debt with a very low interest rate, access to an employer 401(k) match program, and/or no emergency savings, you may want to prioritize savings over debt repayment.

Ultimately, the smartest path forward often involves doing both: saving and paying down debt in tandem, based on your individual situation and future goals. This hybrid strategy can help put you on a path to long-term financial health.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Why is it risky to use savings to pay off debt?

Using savings to pay off debt can be risky because it leaves you without a financial cushion for emergencies. If unexpected expenses arise, like a medical bill or car repair, you may need to rely on high-interest credit again, putting you back in debt. Also if your savings are in a high-yield account or investment, withdrawing them could mean missing out on compound interest and future growth. It’s important to weigh the long-term impact before using savings to eliminate debt.

Which debt should I pay off first?

It’s generally best to start with high-interest debt, like credit cards, because they cost you the most over time. This strategy, known as the “avalanche method,” can reduce the total interest you’ll pay. Alternatively, you might choose to pay off the smallest balances first. Known as the “snowball method,” this approach provides quick wins, which can help boost motivation. The best game plan for you will depend on your personality and financial goals.

How much should I have saved?

A good rule of thumb is to have three to six months’ worth of living expenses saved in an emergency fund. This provides a safety net in case of job loss, medical emergencies, or unexpected costs. Your exact savings goal may vary based on your income stability, family size, and existing obligations. If you’re just starting out, aim for at least $1,000 to cover small emergencies, then build toward a more substantial reserve while balancing other financial goals like debt repayment.

Are personal loans a good alternative to using savings?

Personal loans can be a viable alternative to using savings to pay down debt, especially if you can secure a lower interest rate than your current debt carries. However, loans add to your overall debt load and come with fees and interest. Using savings avoids interest, but could leave you vulnerable if emergencies arise, so it’s important to weigh your options carefully.

How do I balance saving and paying off debt at the same time?

Balancing saving and debt repayment involves setting clear priorities and budgeting effectively. Start by building a small emergency fund (e.g., $500-$1,000) while making minimum payments on all debts. Then, focus on aggressively paying down high-interest debt while still contributing modestly to savings. Once high-interest debt is reduced, you can shift more income toward savings. The goal is to avoid future debt by preparing for emergencies and long-term financial goals.

Should I use my savings to pay off credit card debt?

Using savings to pay off credit card debt can make sense if the debt carries high interest and your savings exceed your emergency needs. Since credit cards often charge upwards of 20% interest, paying them off can save you money long term. However, you should keep a basic emergency fund — typically $1,000 or more — so you don’t fall back into debt when unexpected expenses arise. If your savings are limited, consider a blended approach — pay down some debt while maintaining a small safety net.

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If you’re like most Americans, you love your plastic and swiping or tapping through your day. In fact, about 74% of Americans have at least one credit card, according to the Federal Reserve Bank of New York, with the average wallet holding more than three, according to data from Experian®.

The national love affair with credit cards is built on their convenience, how they provide a line of credit to enable buying things we can’t quite afford to pay for with cash, and those enticing rewards that are often offered.

But the picture is not altogether rosy: As a nation, US citizens have more than $1.2 trillion in credit card debt. And with interest rates averaging over 20%, that debt can be hard to chip away at.

To help you better understand how credit cards work, how much credit card debt people typically have, and what are smart strategies for paying down credit card debt, keep reading. You’ll learn interesting facts as well as helpful hints.

10 Facts About Credit Card Debt

Ready to learn more about credit card debt, a form of revolving debt? These 10 credit card facts will help you better understand who has how much debt and where difficulties paying the balance typically crop up.

1. Almost Half of Americans Have Outstanding Credit Card Debt

Recent research shows that 46% of Americans carry a credit card balance as of late 2025. This indicates that carrying a balance is a common situation for many Americans, even with the eye-wateringly high interest that’s charged.

Recommended: Tips for Using a Credit Card Responsibly

2. People with Credit Card Debt Owe an Average of Almost $7,000

Americans had an average credit card balance of $6,731, according to TransUnion® data. Of those with a balance, most carried it for at least a year.

Just because this is the norm, it doesn’t mean that it’s ideal: The best-case scenario is to only charge as much as you can afford to pay off in full every month.


💡 Quick Tip: Credit card interest caps are a hot topic, as American credit card debt continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline and could save you thousands in interest payments.

3. It Can Take More Than a Decade to Pay Off $7,951 in Debt

Racking up credit card debt takes much less time than getting rid of it. Say that, like the average American, you have $6,731 in credit card debt, as noted above.

At an interest rate of 20% on existing, with a $150 monthly payment, it would take you 84 months — or seven years — to pay that off. And you would pay $5,773 in interest, or almost as much as the original amount you charged!

But the more you can pay each month, the faster you’ll extinguish the debt. In this example, if you increase your monthly payment to $500, you’d pay off the debt in just 16 months and only spend $955 in interest. These scenarios are, however, assuming that you are not accruing new debt and therefore paying off larger credit card bills.

4. Gen Xers Have the Most Credit Card Debt

Ready for more credit card facts? Here is how age and debt intersect. Gen Xers, the generation that includes people born between 1965 and 1980, have the highest percentage who carry credit card debt at 55%. Next in line are Millennials, born between 1981 and 1996, with 49% carrying credit card debt.

5. Alaskans Have the Highest Credit Card Debt

In a state-by-state analysis of credit card debt, Alaska residents led the pack with $8,026 per person. Those who live in Iowa were found to have the lowest at $4,774.

6. 65% of College Students Have Credit Card Debt

The habit of carrying credit card debt unfortunately starts early, with more than six out of 10 college students carrying a balance on their credit cards. Some of this may well be due to nonessential purchases, such as impulse buys, Uber rides, or fancy coffees.

7. One in Three Americans Owes More On Credit Cards Than They Have Saved for Emergencies

This may be a scary fact about debt, but one in three US adults owes more on their credit card than they have saved for emergencies. In fact, 33% say this is the case. This shows a two-sided problem: too much spending and too little saving.

Recommended: Paying Off $10,000 in Credit Card Debt

8. Richer People Have Credit Card Debt Longer

More interesting credit card debt facts: According to recent data, 62% of those who earn $300,000 or more a year struggle with credit card debt. Perhaps this statistic suggests that high-earners feel they have the means to handle debt and therefore don’t rush to repay it.

9. Men Have More Debt Than Women

Men have an average of $6,357 in credit card debt, while women have an average of $6,232. Perhaps not a huge difference, but so much for the myth of women shopaholics using credit cards to fill an overflowing closet with shoes.

There are many potential reasons for this difference, but some studies have found that women are less comfortable with debt. Also, there is still a gender gap in earning, which could impact spending and debt.

10. There’s a Good Chance You’ll Die With Credit Card Debt

Here’s the last of these debt facts, and it can be a grim one: Nearly three-fourths of Americans are in debt when they die, according to one benchmark study.

And 73% die with credit credit card balances. That’s not exactly a desirable legacy. Although family members don’t generally become responsible for the debt, it may be taken out of the deceased person’s estate.

Why Is Credit Card Debt So Common?

There are many reasons that Americans have so much credit card debt, from rising healthcare and educational costs to lack of emergency savings to a cultural consumerism that encourages people to live beyond their means.

Regarding that last point, you may hear about the phenomenon referred to as Fear of Missing Out or FOMO spending, which is a modern version of “keeping up with the Joneses.” In other words, because your friends, coworkers, or influencers you follow on social media are buying something, you feel you should as well.

Or perhaps part of the problem can be explained by what is known as lifestyle creep. This situation occurs when you earn more money but your spending rises too, so your wealth doesn’t grow. For example, if you took a new, higher-paying job and decided to lease a luxury car or take a couple of lavish vacations, your wealth wouldn’t increase, though your credit card balance might.

Tips on Avoiding Credit Card Debt

Perhaps these facts about debt will motivate you to work on avoiding a credit card balance. If so, the following strategies could help.

•   Review different budgeting methods, and find one that works for you. Many people use the popular 50/30/20 budget rule, for example. Also, see if your bank offers tracking and budgeting tools to help you rein in spending.

•   Gamify savings. You might try sleeping on it rather than making impulse buys to see if the urge to spend passes; it often does. Or go on a spending freeze for a specific period of time or for a certain kind of purchase (say, no dining out in March; no clothing purchases in April).

•   Try buying with cash or your debit card vs. plastic. That will help prevent your debt from snowballing.

•   Consider trying a balance transfer card, which typically gives you a period of zero interest during which time you can pay down what you owe.

•   Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with personal loan repayment terms of 2 to 7 years, you’ll pay down your debt faster.

•   Seek help if you are really struggling to get your debt under control. Nonprofit organizations can help you accomplish this.

The Takeaway

Now that you know some facts about credit card debt and ways to pay it off, you may be looking for a new card that better suits your financial and personal goals. Shopping around to compare features, such as interest rates and rewards, can be a wise move.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

What are the main causes of credit card debt?

Credit card debt can crop up in a variety of ways. Sometimes it’s because expenses get pricier, whether due to lifestyle creep or inflation. Other times, it’s not being mindful about daily spending and making impulse buys. Given how many Americans have more credit card debt than money saved, it’s a common but challenging issue.

How much does the average person have in credit card debt?

Credit card debt facts reveal different angles on this number. The average American household has $6,731 in credit card debt.

How serious is credit card debt?

Credit card debt can be very serious. It’s high-interest debt, and it can be difficult to pay off. It can make it hard for individuals to save for their future and can negatively impact their debt to income ratio, which can be an issue when applying for loans.

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.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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What’s your number? That’s not a pickup line; it’s the digits a mortgage lender will want to know — your credit score for a mortgage application. Credit scores range from 300 to 850, and for most mortgage-seekers, a good credit score to buy a house is at least 620. The lowest interest rates usually go to borrowers with scores of 740 and above whose finances are in good order, while a score as low as 500 may qualify some buyers for a home loan, but this is less common.

Why Does a Credit Score Matter?

Just as you need a résumé listing your work history to interview for a job, lenders want to see your borrowing history, through credit reports, and a snapshot of your habits, expressed as a score on the credit rating scale, to help predict your ability to repay a debt.

A great credit score vs. a bad credit score can translate to money in your pocket: Even a small reduction in a homebuyer’s mortgage rate can save thousands of dollars over time.

Do I Have One Credit Score?

You have many different credit scores based on information collected by Experian, Transunion, and Equifax, the three main credit bureaus, and calculated using scoring models usually designed by FICO® or a competitor, VantageScore®.

To complicate things, there are often multiple versions of each scoring model available from its developer at any given time, but most credit scores fall within the 300 to 850 range.

Mortgage lenders historically have focused on FICO scores. Here are the categories:

•   Exceptional: 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Poor: 300-579

Here’s how FICO weighs the information:

•   Payment history: 35%

•   Amounts owed: 30%

•   Length of credit history: 15%

•   New credit: 10%

•   Credit mix: 10%

Mortgage lenders will pull an applicant’s credit score from all three credit bureaus. If the scores differ, they will use the middle number when making a decision.

If you’re buying a home with a non-spouse or a marriage partner, each borrower’s credit scores will be pulled. The lender will home in on the middle score for both and use the lower of the final two scores (except for a Fannie Mae loan, when a lender will average the middle credit scores of the applicants).

Recommended: 8 Reasons Why Good Credit Is So Important

What Is the Minimum Credit Score to Buy a House?

The median FICO score for homebuyers in late 2025 was a very healthy 735, according to Realtor.com® data. Fortunately, not everyone buying a home will need a score this high to qualify for a home loan. After all, the median credit score in the U.S. is 715. (Using the median versus the average credit score necessary to buy a house helps ensure that unusual buyers with extremely high or low scores don’t throw off the calculations.) How low can you go and still buy a house? The answer hinges on your mortgage.

Credit Score Requirements by Loan Type

What credit score do you need to buy a house? The answer will depend on the type of mortgage loan you’re seeking. If you are trying to acquire a conventional mortgage loan (a loan not insured by a government agency) you’ll likely need a credit score of at least 620. The best credit score to buy a house is 740 or better, because that will help you obtain a lower interest rate. But many buyers purchase a home with a lower score.

With an FHA loan (backed by the Federal Housing Administration), 580 is the minimum credit score to qualify for the 3.5% down payment advantage. Applicants with a score as low as 500 will have to put down 10%.

Lenders like to see a minimum credit score of 620 for a VA loan, though some will go lower, to 600.

A score of at least 640 is usually required for a USDA loan, though borrowers with strong compensating factors, such as a healthy savings, might qualify at 620.

A first-time homebuyer with good credit will likely meet FHA loan requirements, but a conventional mortgage will probably save them money over time. One reason is that an FHA loan requires upfront and ongoing mortgage insurance that lasts for the life of the loan if the down payment is less than 10%.

Steps to Improve Your Credit Score Before Buying a House

Working to build credit over time before applying for a home loan could save a borrower a lot of money in interest. A lower rate will keep monthly payments lower or even provide the ability to pay back the loan faster. Here are some ideas to try:

1.    Pay all of your bills on time. “Payment history makes a bigger impact on a person’s credit score than anything else — 35%. So the most important rule of credit is this: Don’t miss payments,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

2.    Check your credit reports. Be sure that your credit history doesn’t show a missed payment in error or include a debt that’s not yours. You can get free credit reports from the three main reporting agencies. To dispute a credit report, start by contacting the credit bureau whose report shows the error. The bureau has 30 days to investigate and respond.

3.    Pay down debt. Installment loans (student loans and auto loans, for instance) affect your DTI ratio, and revolving debt (think: credit cards and lines of credit) plays a starring role in your credit utilization ratio. Credit utilization falls under FICO’s heavily weighted “amounts owed” category. A general rule of thumb is to keep your credit utilization below 30%.

4.    Ask to increase the credit limit on one or all of your credit cards. This may improve your credit utilization ratio by showing that you have lots of available credit that you don’t use.

5.    Don’t close credit cards once you’ve paid them off. You might want to keep them open by charging a few items to the cards every month (and paying the balance). If you have two credit cards, each has a credit limit of $5,000, and you have a $2,000 balance on each, you currently have a 40% credit utilization ratio. If you were to pay one of the two cards off and keep it open, your credit utilization would drop to 20%.

6.    Add to your credit mix. An additional account may help your credit, especially if it is a kind of credit you don’t currently have. If you have only credit cards, you might consider applying for a personal loan.

How Long It Takes to See Changes in Credit Score

Working on your credit scores may take weeks or longer, but it can be done. Should you find an error in a credit report, you can expect it to take up to a month for your score to change. And if you haven’t been paying bills on time, it could take up to six months of on-time payments to see a significant change.

Other Factors Besides Credit Score That Affect Mortgage Approval

Credit scores aren’t the only factor that lenders consider when reviewing a mortgage application. They will also require information on your employment, income, debts, and bank accounts. Your down payment will be a factor as well. Putting 20% down is desirable since it often means you can avoid paying PMI, private mortgage insurance that covers the lender in case of loan default. But many homebuyers — particularly first-time buyers — put down less than 20% and simply factor PMI into their monthly budget.

Other typical conventional mortgage loan requirements a lender will consider include:

Debt-to-Income Ratio

Your debt-to-income ratio is a percentage: the total of your monthly debts (car payment, student loan payment, alimony, etc) divided by your gross monthly income. Most lenders require a DTI of 43% or lower to qualify for a conforming loan. Jumbo loans may have more strict requirements.

Employment and Income History

A mortgage lender will want to verify your employment and income and may request pay stubs and w-2 statements. Don’t be surprised if the lender also reaches out to your employer to confirm your employment. If you are self-employed, you may be asked for a profit-and-loss statement for your business and for more than a year or two of tax returns. Lenders are looking for borrowers who have a steady income source and can be relied upon to repay a large sum over a long period of time.

Available Savings and Assets

Having cash reserves or investments that you can liquidate in the event that you need to pay your mortgage bill is another factor a prospective lender will consider. So lenders will ask you for information about your accounts, including savings and 401(k) accounts. The lender is also looking to be sure that you have the resources to cover the down payment amount and closing costs related to the home purchase.

A lender facing someone with a lower credit score may increase expectations in other areas like down payment size or income requirements.

If you want to see how all these factors come together in your financial profile to determine what size loan you might be approved for, you can first prequalify for a mortgage with multiple lenders. Ultimately, you may want to seek out mortgage preapproval from at least one lender so you have a very clear picture of your home-buying budget and can move forward swiftly when you find a home you love.

Recommended: 31 Ways to Save for a House

The Takeaway

What credit score is needed to buy a house? The number depends on the lender and type of loan, but most homebuyers will want to aim for a score of 620 or better. A better credit score is not always necessary to buy a house, but it may help in securing a lower interest rate.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What credit score is considered good for buying a house?

Generally speaking, you’ll want a credit score of 620 or better if you are looking at a conventional loan or VA loan. A USDA loan would require at least 640 from most borrowers. An FHA loan offers more lenient terms: You could qualify with a score as low as 500, though 580 will allow you to put down a low, 3.5% down payment.

Can I buy a home with a low credit score?

It is possible to get a mortgage and purchase a home with a credit score as low as 500 if you obtain an FHA loan and put down a 10% deposit. If you are looking at a different loan type, then you will likely need at least a 620 score, though if you have a healthy savings and solid income, you may be able to squeak by with a slightly lower credit score.

Do mortgage lenders use FICO or VantageScore?

Mortgage lenders have historically relied on FICO scores but now can use either FICO or VantageScore for loans delivered to Fannie Mae and Freddie Mac, the two entities that buy mortgages from lenders, thereby guaranteeing most of the mortgages in the U.S.

How can I improve my credit score before applying for a mortgage?

The most important thing you can do to help nurture your credit score before applying for a loan is to make your payments in full and on time. Other things, such as requesting credit line increases (but not spending up to the limit) or diversifying your credit mix by adding a personal loan to your credit cards, can help. So can not closing old, unused credit cards. But by far, on-time payments should be your number-one goal.

What other factors do lenders look at besides credit score?

A lender considering a mortgage application will look at your income (both the raw number and how consistent your earnings have been). Your debts, and the ratio of debts to income, will also be important, as will your savings in cash and other assets. Your down payment amount could also factor into a lender’s decision about qualifying you for a loan.

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

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