3 Ways to Decide If Credit Card Loans Are Right for You

credit card loans

The average American credit card holder has more than $4,000 in credit card debt.

If that sounds like you (and you’re drowning in credit card bills), then it’s time to consider changing up your debt repayment plan. If you don’t, you could be stuck with credit card debt for years to come thanks to high interest rates and low minimum payments.

Credit card loans can help lower your interest rate and encourage you to pay down your debt faster. But they’re not the best choice for everyone, so it’s important to know what you’re applying for and whether it’s the right fit for your situation. Here’s how you can get started.

What are credit card loans?

A credit card loan, also known as a credit card consolidation loan, is a personal loan you can use to consolidate credit card debt. Unlike credit cards, credit card loans have a set loan term.

But depending on your creditworthiness, budget, and other options, credit card loans might not be the best choice for you. To help you decide, here are three questions to consider.

1. Can you qualify for a lower interest rate?

The average credit card APR is 16.15%, according to a November 2017 report from CreditCards.com. Here are a few companies that offer credit card loans with interest rates lower than that:

Lender Interest Rate Minimum Credit Score Minimum Annual Income
SoFi 4.98% - 14.24% None $50,000
Earnest 5.25% - 14.24% 660 None
Citizens Bank 5.99% - 16.24% 680 $24,000

The fact that you meet the lender’s minimum credit score and income requirements doesn’t mean you’ll get a low interest rate, though. The better your credit history and income are, the lower your interest rate will be.

In some cases, it might be worth trying to get a co-signer on the loan to improve your chances of getting a lower interest rate. But if you can’t find a co-signer and don’t qualify for a better rate on your own, you won’t be better off with a credit card consolidation loan.

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To help you see what your chances of getting a lower rate are, these and other lenders allow you to pre-qualify with a soft credit check, which won’t hurt your credit score.

You’ll get to see some preliminary offers based on that credit check, which can give you an estimated interest rate to work with.

2. Can you manage the new monthly payment?

Since credit card loans have a set repayment term, you might end up with a higher monthly payment than you’re comfortable with.

For example, say you have $10,000 in credit card debt with a 17.00% APR and your minimum monthly payment is $100. If you were to consolidate with a five-year credit card loan with a 10.00% APR, your monthly payment would be $212.

Calculate your monthly payment using Student Loan Hero’s monthly payment calculator.

If that amount fits in your budget, you’re in good shape. You’ll have a lower interest rate and a clear payoff date. If you can’t afford $212 per month, however, consolidating could put you in a position where you’d need even more debt to cover the shortfall.

3. Is a balance transfer better?

Credit card consolidation loans aren’t the only way to pay off credit card debt more efficiently. Depending on your credit situation, you might be able to pay off your credit cards with another credit card.

Some credit cards offer 0% APR promotions on balance transfers. For example, the Citi Simplicity card gives you 21 months to pay off a balance transfer with no interest.

Say you can qualify for that card and the APR after the promotional period is 17.00%. Here’s how the math works out for your different options:

Payoff Method Monthly Payment Payoff Period Interest/Fees Paid
Original credit card $100 Never* N/A
Credit card consolidation loan $212 60 months $2,748**
Balance transfer card $212 54 months $1,433
Balance transfer card $476 21 months $0

*The 17.00% APR on the card is high enough that you’ll never pay off the balance with just $100 per month.
**You might have to pay an origination fee on top of this amount. For loans that charge origination fees, they typically range from 1 percent to 6 percent of the loan amount.
You might have to pay a balance transfer fee on top of this amount. For cards that charge balance transfer fees, they typically range from 2 percent to 5 percent of the transferred amount.

Whether you plan to pay off the balance transfer card by the end of the promotional period or stick with the same payment as the credit card loan, the math works out in your favor in this scenario.

But it won’t be the same in every situation, especially if you revert to making the minimum credit card payment. In other words, a balance transfer card requires more discipline.

If you think you might be tempted to cheat on your debt payoff plan by lowering your monthly payments down the road, use a credit card loan; the structured payment plan doesn’t give you an opportunity to cheat.

Avoid analysis paralysis when it comes to credit card loans

It’s not always easy to know whether credit card consolidation loans are right for you. You might get stuck on the math or second-guess your motivation to stick with the payoff plan. But it’s important to avoid putting off a decision.

Use an online credit card consolidation calculator and balance transfer calculator to see the numbers. Then, compare different balance transfer credit cards and credit card loans to see what kinds of offers you qualify for and which one works best for you.

Even if you don’t choose the option that makes the most sense financially, choosing an option that’ll save you money is a good start.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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