Three Reasons to Consolidate Credit Card Debt with A Personal Installment Loan

By Lisa Weinberger

For those striving to reduce or eliminate debt burdens, a revolving credit card balance can be a joy-killer and a budget-buster.

The numbers are sobering for cardholders trying to develop a game plan to free themselves from their liabilities. The average debt per credit card that usually carries a balance is $8,220, according to a 2013 analysis of card files by Experian. That figure doesn't reflect potentially higher debt loads for cardholders who carry a balance on more than one card.

Climbing out of debt takes discipline and sacrifice no matter which strategy you choose. But some routes to financial freedom may offer surprising benefits along the way.

One option that may not be known to a consumer is a personal installment loan.

"People don't evaluate personal installment loans when looking at all options for getting out of credit card debt," says John Ulzheimer, credit expert at "I think people probably consider bankruptcy before considering a personal installment loan because they just don't know it's an option."

While using a personal installment loan to pay off credit card debt clearly isn't actually getting you out of debt, it's a great tool to get you on the path toward a zero balance. Here's why.

Don't pay more interest than necessary

Depending on the terms offered, a personal installment loan may be cheaper or on par with the amount of money you're paying on credit card interest already.

"While it's not the cheapest form of credit because it's unsecured, personal installment loan rates tend to run much less than credit card interest rates," says Ulzheimer. "You can find personal installment loans in the 13 percent to 15 percent range."

Compare that to the national average credit card rate of 15.03 percent, according to at the time of this writing. And Credit card costs adjusted to default rates can easily run into the high 20s.

Depending on the scenario, cardholders may be able to save a little on interest by moving balances onto a personal credit line.

Boost your credit score

The real benefits to personal installment loans are related to credit. By converting revolving debt into installment debt, you may be helping your credit score.

"When the credit card is paid off and the balance pops up on the installment loan, your credit score will likely go up and likely go up a lot, especially if the conversion wipes out or nearly wipes out all card debt," says Ulzheimer.

The reason for this is the credit-scoring formula. The debt-to-limit ratio, which considers how close your card balance is to your credit limit, is very influential in calculating credit scores. The closer your balance gets to your credit card limit, the worse off your credit score will be.

The debt-to-limit ratio only considers credit card debt, so converting card debt into an installment loan may cause the ratio to fall, making your credit score go up.

A dead end to the debt cycle

The good news with personal installment loans is there's an end in sight. Unlike credit cards, personal installment loans are amortized over a fixed period of time.

"Credit cards stay open as long as the issuer chooses to keep them open," says Ulzheimer. "It could take decades in some scenarios to pay off even modest amounts of credit card debt."

As with any form of credit, it's important to make timely payments and act responsibly. Defaulting on a personal installment loan is equally as harmful as defaulting on a credit card. In either scenario, missing payments will result in damaged credit and collection activity.

Would you use a personal installment loan to get out of credit card debt?


John Ulzheimer (CreditSesame) quotes from interview.

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