Couple doing loan paperwork
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Should people with big credit card debt take out personal loans to pay the bills? They can, and in certain cases they should at least consider it.

When you’re dealing with everyday expenses such as utility bills, using personal loans for bills doesn’t make sense. However, a credit card bill isn’t the same as other kinds of debt. The Annual Percentage Rate (APR) for credit cards can lead to steep interest charges (and possible late fees) if you don’t pay off the monthly bill on time and in full.

Depending on your situation, a personal loan could provide an opportunity to avoid that mounting debt.

Pros and cons of personal loans

Consider the hypothetical case of having $10,000 in credit card debt. How would you benefit by paying off a credit card with a personal loan and what are some potential drawbacks?

Pros

A potentially lower interest rate

In October 2018, the average credit card APR reached an all-time high of 17.07%. Two months earlier, the Federal Reserve reported the average interest rate for a two-year personal loan at 10.12%.

Research rates on personal loans

More time to repay the debt

A personal loan typically has a repayment term of one to five years. While taking out a loan is a long-term commitment, remember that you get the money upfront all at once. You can pay off your entire credit card balance and then focus on repaying the loan in equal monthly installments. You may find that arrangement more manageable than trying to trying to chip away at a large credit card bill while continuing to face APR and possible late payment fees.

Paying off multiple debts

You can take out a debt consolidation loan to pay bills on more than one credit card. A personal loan for bills on multiple credit cards lets you replace multiple bills with one loan payment per month. You can use Bankrate’s Debt Consolidation Calculator to develop a repayment plan for debts on multiple credit cards.

Cons

Interest rates depend on credit scores

Bear in mind that the 10.12% interest rate mentioned earlier is an average, so your results may vary. Your credit score plays a large role in determining your interest rate on a personal loan — the lower the credit score, the higher the interest rate could be.

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Secured vs. unsecured loans

Personal loans are typically unsecured, meaning you don’t have to back the loan with a type of collateral such as a car or home. With a secured loan, however, you could put your collateral at risk if you default.

Debt is still debt

Taking out a personal loan for credit card bills means substituting a different kind of debt for your credit card debt. You’ll still need financial discipline to pay off your obligations and become debt-free.

Weigh your options before deciding

With the right lender and a commitment to sound financial habits, taking out a personal loan to pay bills could help you get out of credit card debt. Take the time to compare loan offers, including interest rates and terms, before deciding on a course of action.

SHOP FOR PERSONAL LOANS: Check out the offers from Bankrate’s personal loans marketplace.