The average American has $6,595 in credit card debt, according to May 2026 data from Capital One.
Carrying that debt can cost a consumer more than $1,500 in interest over a two-year payoff period, based on the Federal Reserve’s estimated average credit card rate.
Those extra monthly interest payments can be make-or-break for the 40 percent of American consumers who are living paycheck-to-paycheck, according to a December survey from payments data, news and insight platform PYMNTS.
Using a personal loan to consolidate that credit card debt can drastically reduce monthly interest payments, freeing up money for consumers to save, add to an emergency fund or direct toward other existing debt.
Aside from interest rates, personal loans offer other benefits that help consumers manage their debt effectively.
Cutting costs
Personal loans use fixed interest rates while credit cards use variable rates. In simple terms, personal loan interest rates won’t change over the life of the loan, but credit card rates can rise and fall based on several factors.
So, over time, a credit card’s interest rate could increase, costing borrowers more than what they might have paid when they first opened the account.
The variability of a credit card interest rate can make monthly budgeting more complicated, especially if a consumer doesn’t have any wiggle room in their monthly expenses.
More importantly, though, personal loan interest rates will likely save money.
In May, the average credit card interest rate was 20.94 percent, and the average two-year personal loan rate was 11.86 percent, according to Federal Reserve estimates.
A $6,595 credit card balance paid off in two years at 20.94 percent would cost the borrower $1,533 in interest.
The same balance paid back with a two-year personal loan at 11.86 percent would cost the borrower $845.45 in interest, or just over $500 less than what they’d pay if the balance were on a credit card.
Fixed forever
Personal loans make debt repayment easier because their fixed rates mean a predictable monthly payment, making it easier to budget.
The repayment term of a personal loan is also fixed, barring any modifications. A two-year loan is repaid over two years, whereas consumers making minimum payments on a $6,595 credit card balance would have to wait 10 years to pay off the entire balance.
One lender, one payment
The average American consumer has four credit cards, according to Synchrony Bank, which means some consumers have a lot of payments to keep track of.
Consolidating those balances with a personal loan reduces that to one - no need to remember multiple due dates and balances.
Personal loans simplify debt repayment by consolidating multiple balances into one account. Not only do consumers get a single payment, but also deal with a single lender.
Climbing credit scores
Generally speaking, credit scores are based on five factors, according to MyCreditUnion.gov:
- On-time payments
- How much credit is being used
- Types of credit owned
- Length of credit
- New credit
The two most influential factors are on-time payments and how much of a consumer’s credit limit is being used.
Individuals can often see a big boost in their credit score - by double-digits, in some cases - when credit card balances are either paid down to under 30 percent of their limit or completely paid off.
Some 68 percent of consumers see their credit scores rise by more than 20 points after debt consolidation, according to a 2019 study from credit bureau TransUnion.
Assuming a personal loan is big enough to cover all of a consumer’s credit card balances, they’ll likely see a big increase in their credit score once each balance is paid off.
Collateral-free
Consumers can consolidate their debt with a wide range of options, including home equity loans and lines of credit. In both cases, consumers have to provide their home as collateral for funding. If the homeowner fails to pay back their loan, the lender can take the borrower’s home, according to the Consumer Financial Protection Bureau.
Secured loans used for debt consolidation are a risk because consumers may lose a valuable asset if they don’t follow through on payments.
Personal loans, on the other hand, are unsecured - no collateral is required to get them. While consumers won’t lose any collateral when borrowing an unsecured loan, their credit score will suffer if they don’t make payments, according to the Consumer Financial Protection Bureau.
“The lender can report late or missing payments to the credit reporting companies, can engage in debt collection, and might sue the borrower,” the bureau notes.
This article is sponsored by Credit Karma. We may earn a commission if you engage with their services using links in this article.
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