Feeling drained by credit card debt? Here’s why personal loans are becoming the preferred solution

Carrying credit card debt with rates over 22% APR can really take a toll. Discover how personal loans might help lower your expenses, what interest rates are like following the Fed's recent hike, and the best time to make the switch.

Heads up: minimum payments keep you trapped in debt

Credit card debt is wearing you down, and it’s more than just your imagination.

If your September credit card bill included back-to-school expenses added to a balance that never seems to decrease, you’re far from alone.

The Federal Reserve Bank of New York reports that Americans collectively owe $1.263 trillion in credit card debt.

As a result, millions are quietly shifting their credit card balances into personal loans.

These personal loans offer fixed interest rates, steady monthly payments, and a definite payoff date. Here’s what’s driving this trend, the data behind it, and how to decide if it’s right for you.

H2: Why Credit Card Debt Is Sapping Your Finances Right Now

According to the Federal Reserve’s most recent figures, the average APR on credit card accounts that carry interest is 22.15%. Your credit rating impacts your rate: WalletHub reports that new credit card offers average 27.01% APR for fair credit and 23.27% for good credit.

At an APR of 22.15%, carrying an average balance of $7,886 means paying roughly $146 in interest every month—money that never reduces your principal.

The Fed’s September rate hike makes the situation worse

The FOMC unanimously voted 12–0 to increase the federal funds rate to between 3.75% and 4.00%.

Federal Reserve Chair Kevin Warsh stated that “inflation remains too high and has persisted for too long.” Currently, inflation stands at 3.4%, with 16 of 18 policymakers anticipating at least one more rate increase before the year ends.

The majority of credit cards feature a variable APR linked to the prime rate, so rate hikes impact your payments directly.

Ted Rossman, formerly Bankrate’s principal analyst, notes that changes in Fed rates typically “filter through to consumers within one to two months” and influence both new charges and existing balances.

Back-to-school expenses have just arrived

Spending from August is now appearing on September credit card statements. According to a NerdWallet survey, 19% of parents expected to carry credit card debt due to back-to-school expenses, while 24% said they planned to use Buy Now, Pay Later options.

An Increasing Number of People Are Falling Behind

The New York Federal Reserve reports that in Q2 2026, the proportion of credit card balances classified as seriously delinquent (90+ days overdue) climbed to 6.97%.

Joelle Scally, Economic Policy Advisor at the New York Fed, cautioned that “new delinquencies on auto loans and credit cards continue to stay at high levels.”

How Much Could You Save by Making the Switch?

Can consolidation improve your credit score?

Yes, it can. According to a TransUnion report, 68% of people who consolidated their debt experienced a credit score increase exceeding 20 points.

On average, card balances decreased from $14,015 to $5,855. “Debt consolidation loans tend to achieve what they’re intended to,” explained Liz Pagel, then SVP at TransUnion.

H2: Could a Personal Loan Be the Right Choice for You?

When a personal loan makes sense

Your new loan’s APR is noticeably lower than your credit card’s APR, fees included;
You can comfortably handle the fixed monthly payment;
You’re determined to avoid racking up card debt again after paying it off;
Your credit score is 690 or above, qualifying you for better rates.

Risks You Need to Watch Out For

Origination fees: some lenders deduct them upfront, so focus on APR, not just interest rates;
Fair or poor credit: average rates between 23.73% and 27.27% might be higher than your card’s;
Increasing delinquencies: personal loan late payments (60+ days) rose to 3.81%. Only borrow what you can repay;
Don’t rely on a rate cap: the suggested 10% credit card interest cap isn’t law yet. Waiting could cost you months in interest.

How to Move From Credit Card Debt to a Personal Loan in 5 Simple Steps

Step 1: Write Down Each Card’s Balance and APR

Before contacting any lender, make sure you know exactly how much you owe and what you’re paying in interest. Grab the latest statement from each card and note down:

Find the “Interest Charge” section on each statement. This is the amount you’re charged monthly without actually lowering your balance at all.

The typical balance stands at $7,886, with an average APR of 22.15%. That means you’re paying roughly $146 every month in interest alone.

Step 2: Check Your Credit Score for Free

Your credit score plays the biggest role in determining your loan rate. The gap between credit tiers can be significant:

Data source: NerdWallet, September 2026.

Most banks and credit card companies let you check your credit score at no cost.

For comprehensive credit reports, visit AnnualCreditReport.com, the official site offering free weekly credit reports from Equifax, Experian, and TransUnion.

Step 3: Prequalify With a Minimum of Three Lenders

Prequalifying lets you estimate your interest rate, loan amount, and monthly payments without impacting your credit score, since lenders perform only a soft credit check.

Your credit undergoes a hard inquiry only when you officially apply for a loan.

Be sure to compare at least one lender from each category:

Online lenders: fast decisions, often with funding in days, and easy online prequalification;
Banks: may offer lower rates if you’re already a customer. The Fed reports 11.86% as the average on 24-month bank personal loans;
Credit unions: federal credit unions are generally limited to an 18% APR ceiling. That makes them a strong option if your credit isn’t perfect.

Pro tip: prioritize lenders who provide “direct pay to creditors.” This means the loan funds go straight to your card companies, avoiding your checking account entirely.

Step 4: Evaluate APR, Fees, and Overall Cost

The advertised rate rarely tells the whole story. Consider these factors when comparing offers:

APR, not just interest rate: APR factors in origination fees to reveal the actual yearly cost;
Origination fee: some lenders deduct this upfront. For example: a 5% fee means you’d need to borrow about $8,301 to get $7,886 to pay off your cards;
Loan term: longer repayment periods lower monthly payments but increase total interest paid;
Prepayment penalty: confirm you can pay off the loan early with no additional fees.

To illustrate, here’s how different loan lengths affect the cost of borrowing $7,886 at a 19.55% APR:

H3: Step 5: Immediately Pay Off Your Credit Cards and Activate Autopay

Once your loan is approved and the funds arrive, take action that very day:

Pay every card balance in full. If your lender offered direct pay, confirm the payments went through;
Check each card account a few days later to confirm a $0 balance. Interest charged in the last cycle can leave a small leftover amount;
Set up autopay on the new loan so you never miss a payment. Some lenders also give a small rate discount for autopay;
Keep your card accounts open. Closing them can hurt your score by increasing your credit utilization and shortening your credit history.

After paying off your cards, your credit utilization ratio decreases, often leading to a quick boost in your credit score.

A TransUnion report reveals that 68% of people who consolidated their debt experienced a credit score increase exceeding 20 points.

Step 6: Maintain Your Gains to Prevent Falling Back Into Debt

This is the point where many stumble. Paying off credit cards with a loan only works if you keep those card balances at zero.

If not, you risk doubling your debt burden.

Take your cards out of your wallet and remove saved cards from online stores and apps;
Plan ahead for the holidays. Holiday shopping is weeks away, so set a cash budget now, before the season starts;
Build a small emergency fund, even $500 to $1,000. Most people rack up card debt again because of an unexpected expense, like a car repair or a medical bill;
Turn on spending alerts in your card apps so any new charge shows up right away;
Use your cards for one small bill only, such as a streaming service on autopay. That keeps the account active without letting a balance build up.

Author’s Perspective

Having reported on personal finance for over ten years, I can confidently say this situation stands apart from others.

Card balances are at all-time highs, APRs exceed 22%, and the Fed just raised rates rather than lowering them.

Households carrying credit card debt face pressure from every angle. I’ve seen many wait for rate cuts or regulatory limits, while their interest costs quietly drain hundreds of dollars each month.

Personal loans aren’t a cure-all and aren’t suitable for everyone. If your credit score is average or low, the numbers might not add up, and seeking advice from a counselor could be a smarter first step.

However, if you can secure a significantly lower fixed rate, locking it in before the next rate increase could be one of the best decisions you make this autumn.

Written by

A. Alexandre