Using a low-interest personal loan to pay off pricey credit card debt has the potential to save you a lot of money. For example, if your annual percentage rate (APR) is 16% on your credit card and you consolidate $10,000 in debt with a new, 24-month personal loan with a 7.50% percent rate, you could save:

—Nearly $1,100 in interest fees

—Nearly $50 per month

Faster payoff

If you qualify for a low-interest personal loan, you could pay off your debt in a significantly shorter amount of time.

Credit benefits

Thirty percent of your FICO Score is set by how much of your available credit you’re using, also known as your credit utilization ratio. If you’re using most of your available credit, it can be harder to get approved for other forms of debt and can lower your score.

With a consolidation loan, the amount of debt owed would still be on your credit report. However because personal loans are installment loans, they don’t impact your score as severely as credit cards. Consolidating your debt and making the monthly payments is a sure-fire way to quickly increase your score by lowering your utilization levels.

You can also use a balance transfer credit card to pay off your outstanding credit card debt. If you have good credit, you may be able to qualify for a balance transfer offer with a low or 0 percent interest rate for six, 12 or even up to 24 months.

However, because the new balance transfer card is still a revolving account, you probably won’t see as much of a credit score benefit if you opt for this as you would with a personal loan. Plus, if you don’t pay down the balance by the end of the offer period, you could find yourself stuck with more high-interest debt down the road.

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