Should I Get A Loan To Pay Off Debt

I remember sitting at my kitchen table, surrounded by credit card statements and loan offers, feeling trapped between a rock and a hard place. I had a high-interest credit card debt that was eating into my paycheck every month, and I was considering taking out a personal loan to pay it off. It didn’t feel right, but I was confused about whether it was a smart move. What I didn’t realize then was that this was a common struggle for millions of people — and that the answer to the question 'should I get a loan to pay off debt' isn’t always black and white.

I had $10,000 in credit card debt at 22% APR. I thought taking out a 10% interest loan to pay it off would be a way to cut my monthly payments and get some breathing room. That’s when I realized that this approach might not be the best idea — and that understanding the full picture was essential. I didn’t know about the hidden costs, the tax implications, or the long-term impact on my credit score. That’s why I’m writing this article: to help you make an informed decision about whether getting a loan to pay off debt is the right move for your situation.^[1]

If you’re asking yourself 'should I get a loan to pay off debt,' you’re not alone. In fact, a recent survey by the National Foundation for Credit Counseling found that over 40% of Americans have considered using a loan to pay off high-interest debt. But the truth is, this strategy can be a double-edged sword — it can save you money if done right, or leave you with even more debt if mismanaged. That’s why I want to walk you through the pros, cons, and key factors to consider before making a decision that could impact your financial future for years to come.^[2]

Understanding the Basics of Debt and Loans

As of September 2026, Debt can be a burden, but it's also a tool that, when used correctly, can help you build credit, invest in opportunities, or even improve your quality of life. However, when you're dealing with high-interest debt, like a credit card with an APR of 20% or more, the temptation to take out a lower-interest loan can be strong. But before you jump into that, it's essential to understand the full picture — and that’s exactly what this article is here to help with.^[3]

I learned the hard way that not all loans are the same. A personal loan with a lower interest rate might seem like a good idea, but if the loan comes with hidden fees or an unpredictable repayment schedule, it can quickly become a financial disaster. For example, I once took out a loan with a 12% interest rate to pay off my credit card debt. The repayment terms were so confusing that I ended up paying more in the long run.^[4]

The key takeaway here is that getting a loan to pay off debt isn’t a one-size-fits-all solution. It depends on your financial goals, your current debt situation, and the terms of the loan. If you’re not careful, you could end up paying more than you would have with your original debt.

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When Taking Out a Loan Makes Sense

There are scenarios where taking out a loan to pay off debt is a smart move. For instance, if you have a high-interest credit card debt at 22% APR and you can find a personal loan with a lower interest rate, like 9%, it might be worth considering. In this case, the interest savings could be significant over time.^[5]

I had a friend who used this strategy — and it worked for her. She had $15,000 in credit card debt at 24% APR, and she took out a personal loan at 10% APR. Over the course of 5 years, she saved over $5,000 in interest. But she also had a repayment plan in place and never missed a payment, which helped her build her credit score as well.

The key here is that this strategy only works if you can secure a loan with a lower interest rate than what you're currently paying. Otherwise, you're just shifting debt from one place to another — and potentially making it worse.

A lower interest rate can save you thousands — but only if you stick to the plan.

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The Risks of Taking Out a Loan to Pay Off Debt

While a lower interest rate might seem like a win, there are risks involved. For example, if you take out a loan to pay off credit card debt, you're now taking on a new obligation — and if you don’t have the discipline to manage both debts, you could end up in a worse financial position than before.

I saw this happen to a colleague of mine who had a credit card with a 20% APR. He took out a personal loan at 12% to pay it off, thinking he'd save money. But within a year, he missed two payments on the loan and ended up with a lower credit score, a higher interest rate, and more debt than he had before.

This is why it's so important to understand the full cost of a loan — not just the interest rate, but also the repayment terms and the impact on your credit score. If you’re not disciplined, you could end up in a situation where you’re paying more than you would have with your original debt.

“I remember sitting at my kitchen table, surrounded by credit card statements and loan offers, feeling trapped between a rock and a hard place.”— SnowballStart editors

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The Hidden Costs of Taking Out a Loan

While the interest rate is the most obvious factor, there are other costs associated with taking out a loan. For example, many lenders charge origination fees, which can be a percentage of the loan amount. These fees can add up quickly and eat into your savings.

I once took out a loan to pay off my credit card debt, and I didn't realize that there was a 3% origination fee. That fee alone added $300 to the total cost of the loan — and that’s something I wish I had known before I signed on the dotted line.

Another hidden cost is the impact on your credit score. Taking out a new loan can temporarily lower your credit score, which can affect your ability to get other loans or even rent an apartment. It's important to be aware of these risks before making a decision.

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Alternatives to Taking Out a Loan

There are alternatives to taking out a loan that can help you get out of debt without risking your financial future. One of the most effective strategies is the debt avalanche method — where you focus on paying off the debt with the highest interest rate first. This can help you save money over time by reducing the amount of interest you pay.

I used this method to pay off my own debt, and it worked incredibly well. I had three credit cards with different interest rates, and I focused on paying off the one with the highest rate first. Within two years, I had no credit card debt — and I had more money to save than I had before.

There are also other strategies, like the debt snowball method, which focuses on paying off the smallest debts first for psychological motivation. It’s important to choose the method that works best for your personality and financial situation.

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The Long-Term Impact on Your Credit Score

Your credit score is one of the most important financial indicators — and it can be affected in various ways when you take out a loan to pay off debt. On the positive side, if you take out a loan and make all your payments on time, it can help improve your credit score by adding a new, positive credit account to your history.

However, if you take out a loan and struggle to make the payments, it can have a negative impact on your credit score. This can make it harder for you to get approved for other loans or even rent an apartment. That’s why it's so important to be careful when taking out a loan — and to make sure you can afford the payments.

Another factor to consider is the type of loan you take out. For example, a secured loan — like a home equity loan — can be more beneficial for your credit score than an unsecured loan, because it often comes with a lower interest rate and a more favorable repayment schedule.

Your credit score can be a lifeline — so treat it with care.

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What You Should Do Before Taking Out a Loan

If you’re considering taking out a loan to pay off debt, there are a few key steps you should take before you make a decision. First, you should compare different loan options and find one with the lowest interest rate and the most favorable terms. This can help you save money in the long run.

Second, you should review your budget and make sure you can afford the monthly payments. It's easy to take out a loan and forget about the payments — but if you miss even a few, it can have serious consequences. Third, you should consider the long-term impact on your credit score and make sure you're making the right decision for your financial future.

Finally, you should explore other options, like the debt avalanche or debt snowball method, before taking out a loan. These strategies can help you get out of debt without risking your financial future — and they might even be more effective than a loan in the long run.

Should I Get A Loan To Pay Off Debt