Before making the switch, ask these seven questions.
1. Is the New APR Lower?
Start with the most obvious comparison.
If you're paying 25% APR on credit cards and qualify for a significantly lower personal-loan APR, there's potential for meaningful savings. If the personal-loan APR is similar or higher, the financial benefit may disappear.
2. Are There Fees?
Check for origination fees and other charges. A lower interest rate doesn't necessarily guarantee savings if substantial fees are added. Compare the entire cost.
3. What Is the Repayment Term?
A five-year loan may have a lower monthly payment than a three-year loan. But you're also paying interest for two additional years.
Choose a term that balances affordability with total cost.
4. Can I Afford the Monthly Payment?
Personal loans generally require scheduled payments. Make sure the required payment comfortably fits your monthly budget.
5. How Much Will I Pay in Total?
This is one of the most overlooked questions.
Don't ask only: "What's my payment?"
Ask: "How much will I have paid when the loan is completely paid off?"
6. Will I Stop Adding Credit Card Debt?
This may be the most important question of all.
Imagine consolidating $20,000 of credit-card debt into a personal loan and then accumulating another $10,000 on the cards. You haven't solved the problem—you've increased it.
Have a plan for using your cards after consolidation.
7. Would One Payment Make My Finances Easier?
Consolidation isn't only about interest. Replacing several credit card payments with one scheduled loan payment may simplify budgeting and debt management.
For some borrowers, that simplicity has real value.
When Consolidation Can Work Well
A personal loan may be worth considering when:
- The APR is meaningfully lower
- Fees are reasonable
- The payment fits your budget
- You want a defined repayment schedule
- You're committed to avoiding new revolving debt