Borrowing to repay borrowing sounds like a shell game, and sometimes it is. But the numbers behind it are real, and they’re larger than most people assume.
View the data
| Credit card plans | 20.94% |
|---|---|
| Personal loan, 24-month | 11.86% |
| New car loan, 60-month | 7.14% |
Source: Federal Reserve G.19 via FRED, accessed .
Nine percentage points between a card and a personal loan is not a rounding error. On $10,000 it’s roughly $900 a year of interest, for debt that hasn’t changed size.
The three conditions
The gap above is the available saving. You capture it only if all three of these hold.
1. Your offered rate is genuinely lower. The 11.86% figure is an average across all borrowers. Yours depends on your credit profile, and someone whose card balances have already damaged their score may be offered something much closer to card rates. Compare your actual offer against the weighted average of what you’re paying now — not against the worst card in the pile, which flatters the loan.
Count fees too. An origination fee of a few percent, deducted from the amount you receive, can quietly erase a modest rate saving.
2. The term isn’t much longer than your own plan. This is where consolidation most often goes wrong, and it’s disguised as good news: the monthly payment drops. Stretching a two-year payoff across five years at a lower rate can still cost more in total interest, because you’re paying it for three extra years.
Judge the loan on total amount repayable, not on the monthly figure the lender leads with.
3. You stop using the cleared cards. After consolidating, the cards have zero balances and full limits, and nothing about the loan changed the spending that filled them. The failure mode is well worn: six months later there’s a loan and card debt, and the total is higher than before.
If you’re honest that you can’t stop, the loan will make things worse. That’s not a moral judgement. It’s just the most common way this goes wrong.
Run your own comparison
Enter what you owe on cards at your card rate, then run it again at the loan rate and term you’ve been offered. Compare the interest totals, not the monthly payments:
Payoff calculator
Runs entirely in your browser. Nothing is sent anywhere, and nothing is stored.
Assumes a fixed rate, a fixed payment, and no new spending on the balance. Real statements vary — treat the result as a planning estimate, not a quote.
If the loan doesn’t clearly win on total interest, it isn’t worth the paperwork or the hard inquiry.
What it does to your credit score
Short version: small dip, then usually an improvement.
The hard inquiry and the brand-new account are both minor — new credit is 10% of a FICO score, and length of history is 15% with a new account dragging the average age down slightly.
The gain is larger and comes from amounts owed, which is 30%. Paying cards down to zero collapses your utilisation, and because the reported figure is a snapshot rather than a history, it can show up within a statement cycle or two. Instalment debt is also generally treated more gently than revolving card debt.
The full mechanics, including the ways it can go permanently wrong, are in can debt consolidation hurt your credit.
Loan or balance transfer?
Personal loan. Fixed rate, fixed term, fixed end date. Suits people who want the deadline enforced and who’d otherwise drift.
Balance transfer. Often 0% for a promotional window, with a transfer fee of a few percent. Cheaper if you clear it inside the window. The trap is the reversion rate afterwards, which is frequently worse than the card you left — so diarise the end date the day you open it.
If the balance is large relative to what you can pay monthly, the loan’s enforced schedule usually wins. If it’s small and you can realistically clear it in the promo period, the transfer is cheaper.
When to skip both
- The debts are small enough to clear within a year under your own plan. Fees and a hard inquiry for little gain — just attack them directly.
- The offered rate is close to your card rate. Nothing to capture.
- You can’t afford the minimums today. A new loan is unlikely to be offered at a helpful rate, and the right move is talking to the issuers and a nonprofit counselling service — what to do in that position.
Run your own numbers before signing anything; if the loan doesn’t clearly beat your card rate after fees, skip it and keep paying the cards down directly. The card debt guide covers the rest of what’s worth checking.