Disclaimer: This article is for general information only. It isn’t financial, legal or tax advice, and we aren’t financial advisors, attorneys or tax professionals. Loan terms, rates and eligibility rules change often and differ by lender and borrower. Check the details with the lender, and consider talking to a nonprofit credit counselor about your own situation. We don’t recommend any specific lender or product.
A loan to pay off credit cards swaps high-interest card balances for a single loan with fixed payments. It can save money if the loan costs clearly less than the cards. It can also cost more, put your home or retirement savings at risk, or turn into a scam.
This article looks at which kinds of loans people use for this, who tends to qualify, what to do if your credit is weak, and which options to avoid. For the step-by-step process of applying, see our guide on how to consolidate credit card debt.
The short version
- A loan only helps if its APR, including fees, is meaningfully lower than your card rates.
- Common options are personal loans from banks, credit unions and online lenders, loans with a cosigner, and loans secured by your home.
- With weaker credit, a credit union, a cosigner or a nonprofit credit counselor may offer better options than a high-cost lender.
- Be careful with loans against your retirement plan, and avoid payday and title loans.
- Never pay an up-front fee for a promise of a loan.
Types of loans people use
| Type | How it works | Watch out for |
|---|---|---|
| Personal loan (bank, credit union or online lender) | A fixed amount, repaid in fixed payments over a set term | Origination fees; rates that may not beat your cards |
| Credit union loan | A loan from a credit union you’re a member of | Membership rules; limits on loan size |
| Payday alternative loan (PAL) | A small loan from some federal credit unions | Small amounts, short terms and a higher rate cap |
| Loan with a cosigner or co-borrower | Someone else shares responsibility for the loan | Puts the other person at risk |
| Home equity loan or line of credit | A loan secured by your home | You could lose your home |
| Loan from a retirement plan | You borrow from your own 401(k) | Tax and job-change risks |
| Payday or title loan | Very short, very high cost | Avoid |
Personal loans
These are the most common choice for paying off cards. The Federal Reserve’s G.19 report put the average rate on 24-month personal loans at commercial banks at 11.86% in the second quarter of 2026, compared with 22.15% on card accounts charged interest. Those are averages of banks’ most common rates, not offers. What you’re offered depends on your credit, your income and the lender.
Credit union loans
A statement by an NCUA board member refers to an 18% interest rate cap on many federal credit union loans and notes that many credit unions make personal loans within it. The ceiling can change, so check the current limit. Federal credit unions also offer payday alternative loans, or PALs, which are small. According to credit union trade groups, a PALs I loan runs $200 to $1,000 for one to six months, and a PALs II loan can go up to $2,000 for one to twelve months. The maximum rate is 28%, and the application fee is capped at $20. A member can have one PAL at a time and no more than three in six months. Because the amounts are small, a PAL only fits if your balance is small. Rules can change, so check with the credit union.
A cosigner or co-borrower
A person with stronger credit can sign with you. The FTC’s brochure on cosigning explains what that means for them: if the borrower doesn’t pay, the cosigner will have to, up to the full amount of the debt. The creditor can collect from the cosigner without first trying to collect from the borrower, and a default may become part of the cosigner’s credit record. Only ask someone who understands the risk and could afford to pay.
Home equity loans and lines of credit
The FTC says some consolidation loans, such as a second mortgage or a home equity line of credit, use your home as collateral. If you can’t make the payments, or they’re late, you could lose your home. It adds that most consolidation loans have costs beyond interest, including points, where one point is one percent of the amount you borrow. Credit card debt is unsecured. Turning it into debt secured by your house raises the stakes.
Loans from your retirement plan
Some 401(k) plans let you borrow from your own balance. Plans aren’t required to offer loans. Tax guides say loans from qualified plans are generally capped at the lesser of $50,000 or half of your vested balance, with an exception for balances under $10,000 that not every plan allows, and that they usually have to be repaid within five years. The risks matter:
- If you leave your job with an outstanding loan, you may have to repay it quickly.
- If you can’t repay, the unpaid balance may be treated as a taxable distribution, and possibly subject to a 10% early withdrawal penalty.
- The money you borrow isn’t invested while it’s out, and defaulting permanently removes it from your retirement savings.
Talk to your plan administrator and a tax professional before you consider this.
Payday and title loans
Avoid these. The CFPB explains that a payday loan fee of $15 per $100 borrowed, repaid in two weeks, equals an APR of almost 400%. By comparison, it notes that borrowing $100 on a credit card at a 30% APR costs about $1.25 over two weeks. They’re a poor way to deal with credit card debt, because they can leave you with a bigger problem.
Who tends to qualify?
Lenders generally look at your credit history, your income and your existing debts. One measure many lenders consider is your debt-to-income ratio: your monthly debt payments divided by your gross monthly income. For example, $1,200 in monthly debt payments on a $4,000 monthly income is 30%.
You can improve your odds. Pull your free reports at AnnualCreditReport.com, correct any mistakes, pay down balances if you can, and avoid applying for several new accounts at once. Prequalifying with a soft credit check lets you see likely offers without lowering your score, as Experian’s consolidation checklist explains.
When a loan doesn’t pay off
A loan helps only when its cost is well below your cards’. Here’s a hypothetical with our own calculations. Say you owe $6,000 on cards at 22.15%, and you’re comparing a 36-month loan with no fee at three different rates against staying on the cards with the same monthly payment.
| Loan APR | Monthly payment | Loan total cost | Staying on cards at that payment | Difference |
|---|---|---|---|---|
| 12% | About $199 | About $7,174 | 45 months, about $8,841 | Loan saves about $1,667 |
| 20% | About $223 | About $8,027 | 38 months, about $8,370 | Loan saves about $343 |
| 30% | About $255 | About $9,170 | 32 months, about $7,947 | Loan costs about $1,223 more |
These assume fixed rates, no fees and no new purchases. Fees would reduce the savings further.
The pattern is simple. At 12%, the loan is a clear win. At 20%, the savings are small and fees could erase them. At 30%, the loan is worse than keeping the cards. Compare the APR, which the CFPB says reflects interest and fees, and the total cost, not just the monthly payment.
If your credit is weak
You may have better options than a high-cost lender:
- A credit union. Check membership rules, and ask about its personal loans.
- A cosigner, if someone qualified is willing and understands the risk.
- A smaller loan for part of the debt.
- A nonprofit credit counselor. The FTC says a counselor can review your finances and, if it fits, help set up a debt management plan with lower rates. Our article on credit card debt relief covers it.
- Your own payoff plan. Our step-by-step plan works without a new loan.
- Building credit first, then reapplying in a few months.
Warning signs of a loan scam
Weak credit makes people a target. The FTC describes advance-fee loan scams, where someone promises a loan and asks for a fee first. It says any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, and that legitimate lenders won’t promise or guarantee you a loan before you apply. Other signs include a lender that isn’t registered in your state or one that asks you to wire money. Report scams to the FTC at ReportFraud.ftc.gov.
Mistakes to avoid
- Taking a loan with a rate close to your cards’. The savings may vanish after fees.
- Borrowing more than you need. It’s tempting to keep a little extra. Don’t.
- Choosing by the monthly payment. A longer term lowers the payment and raises the total cost.
- Using your home or retirement savings without weighing the risk.
- Running the cards back up. Then you’ll have the loan and the card debt. See our guide on how to get out of credit card debt.
- Paying anyone up front for a promise of a loan.
Frequently asked questions
What’s the best type of loan to pay off credit card debt?
For most people who qualify, a fixed-rate personal loan with a clearly lower APR and no or low fees. A credit union may offer lower rates if you’re a member. The best choice depends on your credit and your situation.
Can I get a loan to pay off credit cards with bad credit?
You may find offers, but they usually cost more, and some cost more than the cards. Compare the APR, and consider a credit union, a cosigner or a nonprofit credit counselor.
Will a loan hurt my credit score?
Prequalifying with a soft check doesn’t. A formal application usually involves a hard inquiry, and the new loan appears on your report. Paying your cards down and making loan payments on time can help over time.
Is it a good idea to borrow from my 401(k) to pay off credit cards?
It carries real risks, including a quick repayment if you leave your job and possible taxes and penalties if you can’t repay. Talk to your plan administrator and a tax professional first.
Should I use a home equity loan to pay off credit cards?
Be careful. The FTC notes that some of these loans require your home as collateral, and you could lose it if you can’t pay. Credit card debt is unsecured.
How do I avoid a loan scam?
Don’t pay anyone up front for a promise of a loan, and be wary of any lender that guarantees approval. Check that a lender is licensed in your state. Our complete guide to credit card debt covers legitimate options.
Sources
Information was checked in October 2026. Rates, limits and rules change, so verify current details before you act.
- How To Get Out of Debt, Federal Trade Commission, Consumer Advice
- What To Know About Advance-Fee Loans, Federal Trade Commission
- Cosigning a Loan, Federal Trade Commission brochure reproduced by FindLaw
- What is an annual percentage rate (APR) and why is it higher than the interest rate for my payday loan?, Consumer Financial Protection Bureau
- Credit cards key terms, Consumer Financial Protection Bureau (APR)
- Consumer Credit – G.19, July 2026 release, Board of Governors of the Federal Reserve System
- Statement on Payday Alternative Loans II final rule, NCUA Board Member Todd M. Harper
- Comparing PALs I and PALs II Loans, National Association of Federally-Insured Credit Unions
- Retirement Plan Loans, 1040.com tax guide
- Step-by-Step Checklist to Getting a Consolidation Loan, Experian
The examples are hypothetical and calculated by us. They assume fixed rates, interest added monthly, equal payments and no new purchases. They show how the math works, not what you’ll be offered.