Should You Take Personal Loan to Pay off Credit Card Debt?

Credit Cards come with their own set of benefits and charges and can be a good money management too if used wisely. However, if not used judiciously, the use of credit cards can put you into a vicious circle of debt. Using credit cards requires more restraint than paying with cash as credit cards payments are made from a bank account after around 30 days. This easy availability of credit coupled with easier payment options in terms of EMIs, minimum amount due etc. serve as an easy trap for many people. And then credit card debt becomes so huge with hefty interest payments that it keeps increasing every month. In such a situation, is it better to take personal loan to pay off credit card debt? We explore this further in this post. 

Consequences of Paying Minimum Amount Due each Month

personal loan pay off credit card debt

If you are one of those who tends to pay Minimum Amount Due on the credit card statement each month, do make sure you are aware of the consequences as well. It is commonly understood that paying minimum amount due relieves you from any interest liability. However, the reality is that paying this minimum due amount only provides you relief from late payment penalty. However, interest is charged on the amount remaining outstanding. Further, from the next statement cycle, anything you pay through credit card will attract interest from the transaction date itself as compared to the statement due date. Here is what a private bank states in the credit card statements:

“If you spend Rs. 10,000 and pay back exactly the minimum amount due every month, it will take approximately 6.5 years to pay back the complete amount. We therefore suggest that whenever your cash flow allows you, do pay back substantially more than your minimum payment due.”

This statement should be strong enough reason for you to avoid paying just minimum amount due and instead pay the current outstanding in entirety. This is more of an eye-opener than a solution. What if you are already having a huge credit card debt?

Availing a Personal Loan – Better Way to Face the Debt

Now that you have already fallen into the debt trap and finding it difficult to pay off the entire outstanding due to income constraints, you can opt for a personal loan instead. While a credit card is also a sort of personal loan only, a plain vanilla personal loan to transfer the credit card outstanding brings various advantages with it. While you still continue to be in the debt cycle, getting into a low-interest personal loan is definitely a wiser step.

Advantages of Availing Personal Loan to Pay Credit Card Dues

personal loan pay off credit card debt

Using personal loan to pay off credit card debt gives you certain benefits as listed below:

  1. Save on high-interest cost in credit card – Credit cards usually charge 3-4% interest per month on the outstanding dues. Taking a personal loan instead can lower your interest costs as the interest would generally be in the range of 12-20%, thereby resulting in around 50% savings in the interest cost.
  2. Systematic Approach to pay off debt – You can fix EMIs in your personal loan, thereby setting up a systematic approach to getting your debt cleared. Further, with the reduced interest outgo, you can get out of the debt trap faster.
  3. Positive impact on your CIBIL score –If the person with outstanding credit card dues keeps paying minimum due amount, it is not likely to adversely impact their credit score. However, the outstanding amount continues to show off in the credit history which can highlight excessive reliance on debt. On the other side, in case you keep on paying EMIs of the personal loan on time, it helps your credit score as paying off unsecured loans in time is known to impact your credit history favourably.
  4. Consolidation of all your credit card debts under one personal loan – In case you have credit card dues across various banks, you can consolidate all your dues into one personal loan and then steadily plan to clear all the debt in a systematic manner.

Things to be careful of before availing Personal Loan

While it seems an easy decision about replacing your credit card debt with a personal loan, you must  be careful about the terms and conditions of the personal loan. Do make sure to know about the additional charges the bank  or financial institution may be levying for processing the loan. You should also make sure that you are comfortable with the monthly installment as set by the bank, as any default in the payment of EMI will adversely impact your credit score as well.

Weigh all the options before moving ahead with taking a personal loan to pay off your credit card debt. Share your experiences in the comments below.

Simardeep Singh


Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment.