How A Personal Loan Can Help With Holiday Credit Card Debt

svetikd/ Getty Images; Illustration by Austin Courregé/Bankrate

You’re not alone if you dread looking at your debt after this year’s holiday shopping season. Over a quarter (27 percent) of consumers surveyed in Bankrate’s Early Holiday Shopping Survey said they planned to take on credit card debt or using a buy now, pay later service. 

Your credit score may take a hit if you used your credit cards for holiday giving. If you don’t have the cash to clear the balances out quickly, there’s another option worth checking out: a debt consolidation loan. 

While some influencers say not to get a debt consolidation loan, ask yourself two questions:

• Can I pay this debt off quickly based on my current budget?
• Am I okay with a lower credit score until I can pay the balances off?

If your answer to either question is no, you may want to buck the internet advice and shop for a debt consolidation loan. 

When to use a personal loan to pay off credit card debt

In a perfect world, it’s best to avoid taking out one form of debt to pay off another. Personal finance pundits often use terms like “debt spiral” or “debt traps” to discourage consumers from debt consolidation loans. 

However, there are five times when a debt consolidation loan can be an excellent tool to avoid damaging your credit score and develop healthier credit payment habits. 

You don’t have the cash to significantly pay down your balances

If this is you, take heart: Only 44 percent of U.S. adults would be able to cover a $1,000 emergency from savings, much less pay off a pile of credit card debt. And if you do have a nice nest egg in your savings account, you may want to avoid using it to pay off your credit card debt. That could put you in the precarious position of not having enough money on hand to pay for an emergency, which is why a debt consolidation loan can come in handy to make a big dent in the balances of your credit cards. 

You don’t want your credit score to fall

Carrying revolving debt, especially maxed-out credit cards, is almost guaranteed to result in a drop in your credit scores. That means any future financing will be more expensive. 

Paying off credit card balances with a debt consolidation loan not only stops the drop but could also give your scores a big boost. The catch is that you need to avoid using the cards while you’re paying off your debt consolidation loan to see the full benefits to your credit score.

You want a definite payoff date for your debt

An added danger of having too much revolving debt is that it can lead to reliance on the minimum payment option. This, combined with the fact that you can re-use the debt as you pay the balance down, can put you on a revolving debt merry-go-round. 

Debt consolidation loans are installment loans that may help break a cycle of borrowing. You receive all your money at once and can’t re-use it as you pay it off. The set payment schedule means you can put a “paid in full” date on the calendar. 

You can get a lower rate than you’re paying on your credit cards

Average personal loan rates are about 12.5 percent, compared to about 20 percent for credit cards. Swapping out higher interest rate debt for a lower interest rate loan could be a great way to save on interest charges. And keep in mind, if your score has taken a hit because of too much credit card use, you might be able to refinance to an even lower personal loan rate down the road. 

Your bill-paying system is out of control

A debt consolidation loan replaces multiple monthly payments for each credit card with one loan and one due date. That could simplify your monthly budgeting and help you avoid a credit-tanking accidental late payment. 

Pros and cons of debt consolidation loans

Pros

• Lower average rates than credit cards.
• Quick approval and funding processes.
• You don’t need collateral, like a home or car, for approval.
• Replaces variable rate credit card payments with a predictable, fixed-rate payment.

Cons

• Borrowers with bad credit may see rates over 20 percent.
• You’ll lose the minimum payment flexibility you have with credit cards.
• You could still reuse your credit cards after they are paid off.
• Origination fees can be a costly additional charge to your loan.

How to pay off credit card debt with a personal loan

Paying off credit balances with a personal loan involves five fairly simple steps, mainly revolving around determining how much you need to borrow and how much you can afford to pay each month. 

1. Add up your holiday credit card balances. You may want to include any buy now, pay later balances to get the most savings on monthly payments.
2. Check your budget. With the holidays in the rearview mirror, now is the time to check in on how much extra space you have after expenses.
3. Use a loan calculator to review payment options. A personal loan calculator allows you to estimate your potential costs based on interest rate and term. Choose the shortest term you can afford to reduce money spent on interest.
4. Shop around for the best rates and terms. Check the rates and terms of at least three lenders that offer prequalification to avoid damaging your credit score and to find the best debt consolidation loan.
5. Find out how the loan is funded. Some specialized debt consolidation companies will pay your creditors for you. If you’re responsible for paying them yourself, continue making regular payments until the balances are zeroed out. 

If holiday credit card use has become a yearly tradition, start a new one by opening a holiday savings account. This may help you avoid overspending once it’s time to start shopping for gifts — and it’s never a bad idea to have a little extra savings you can draw from as a cushion for emergencies.

Which credit card should you pay off first?

One of the benefits of taking out a personal loan to pay off credit card debt is that you can pay off the balances on your own schedule. It’s always best to pay them in full, but if you don’t get approved for enough to pay them off, consider paying them off in this order:

• Cards with the highest interest rates. This allows you to clear out your most expensive debt and replace it with a lower-rate personal loan with a fixed payment. This is similar to the debt avalanche method of paying off credit card debt, except you use a personal loan to pay the debt off instead of cash. 
• Cards with high balances. With this approach, you focus on cards with high balances compared to your limit. This strategy has the added bonus of pushing down your credit utilization ratio, which measures how much available credit you’ve used. A lower credit utilization ratio can raise your credit scores quickly. 
• Cards with deferred interest. If you don’t have the money to pay off the balance on those “no interest for X months” or “no interest if paid in full” promotions you used to buy holiday gifts, consider adding those to your payoff schedule. You’ll avoid paying the deferred interest due when the promotional period expires. 
• Buy now, pay later loans. A recent Bankrate survey showed that more than a third of U.S. adults used at least one buy now, pay later service last year. If you’re worried about missing a payment or know that the short-term payments will squeeze your budget, pay BNPL balances off with your personal loan.

What is the best way to pay off credit card debt from the holidays?

The best remedy for a holiday credit card debt hangover is to pay the balances off with cash. If your savings didn’t keep up with your spending, or if you don’t qualify for a personal loan, other options may offer you some relief. 

• Use Christmas cash. Empty those Christmas cash cards into your bank account, and use the funds to pay down your credit card balances.
• Redeem credit card reward points. If your holiday spending helped you rack up points on your reward credit cards, see if you can redeem them for cash and take a chunk our of your credit card balances.
• Check out balance transfer cards. If you’re eligible for 0% APR balance transfer cards, see if it makes sense to transfer your high-rate card balances to one. Watch out for balance transfer fees, which can be as high as 5 percent of the transferred amount. 

How to avoid holiday debt in 2025

Early planning may keep you out of holiday debt this year. Look at how much you spent last year, and plan how much you want to spend this year. Allocate extra money earned from side hustles, holiday bonuses or raises to a holiday spending fund. You can also set up an automatic transfer in your checking account to have funds deducted weekly or monthly to build up the balance. 

Bottom line

Revolving debt can easily get out of control because it’s easy to use and reuse. The quicker you pay off credit card debt, the less interest you pay. Once you’ve determined how much you need to borrow, look for lenders that fit your needs and work with your credit profile. Changing multiple credit card payments into one fixed monthly payment can help ease the burden — and lessen the cost of interest if you budget carefully.