Credit glossary
Personal loan
An installment loan, usually unsecured, repaid in fixed monthly payments over a set term and often used to consolidate card debt.
Using a personal loan to pay off cards moves debt from revolving accounts to an installment account. Your total debt stays the same, but card utilization can fall to near zero, and utilization is one of the most heavily weighted parts of a score. Against that, you take a hard inquiry, a new account that lowers your average age, and a loan that starts with a balance close to its original amount.
The move only works if the cards stay paid off. Running them back up leaves you with the loan and the card balances. myFICO's guidance on consolidation loans walks through these trade-offs. Compare the loan's APR and fees with what the card debt actually costs, and keep the paid-off cards open unless their fees are hard to justify.
Guides that go deeper
- Using a personal loan to pay off credit cards: the score mathMoving card debt into a personal loan can drop your utilization sharply. Why it works, what it costs on the scoring side, and the mistake that undoes it.
- Debt snowball vs. avalanche: the real dollar difference, worked outWe ran four real-looking debts through both payoff methods month by month. Avalanche saved $167 here, snowball won its first payoff 9 months sooner.
Sources
- How a Debt Consolidation Loan Impacts Your FICO Scores, myFICO
- How Amounts Owed Impacts Your Credit Score, myFICO
- Types of Credit, myFICO
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