Credit Card Debt vs Personal Loan: Should You Switch?
Credit card balances can cost over 40% a year. Moving them to a personal loan can cut the interest by more than two-thirds. Here is how to do it safely.
Credit cards are excellent payment tools and very expensive loans. If you carry a balance from month to month, the interest can exceed 40% a year. Replacing that balance with a cheaper personal loan — and then not running the card up again — is one of the quickest ways to cut the cost of debt.
Key takeaways
- Unpaid credit card balances typically cost around 3–3.75% a month, which is roughly 36–45% a year.
- Repaying ₹1 lakh over 2 years at 42% costs about ₹49,455 in interest; at a 13% personal loan rate, about ₹14,100.
- The switch only works if you stop adding new card debt.
Why card debt is so expensive
When you pay less than the full bill, interest is charged on the outstanding amount — and in most cases, you also lose the interest-free period on new purchases until the balance is fully cleared. Paying only the “minimum amount due” keeps your account in good standing but barely reduces the debt, because most of that payment goes to interest and charges.
The numbers: ₹1 lakh over 2 years
| Credit card at 42% a year | Personal loan at 13% | |
|---|---|---|
| Monthly payment | ₹6,227 | ₹4,754 |
| Total interest | ₹49,455 | ₹14,100 |
| Saving | about ₹35,355 in interest and ₹1,473 a month | |
Even after a typical personal loan processing fee, the saving is substantial. And that assumes disciplined card repayments; paying only the minimum would make the card far more expensive than shown.
Options to replace card debt
- Personal loan: a fixed EMI and a fixed end date, at a much lower rate if your credit profile is reasonable.
- Card EMI conversion: many banks convert large card balances into EMIs at lower rates than revolving credit. Check the rate, fees and GST.
- Balance transfer to another card: some cards offer a low rate for a few months. Useful only if you can clear the balance within that period.
- Loan against FD or other secured options: often cheaper still, if available.
How to switch safely
- Add up all card balances and the interest rate on each.
- Get a personal loan offer and compare its total cost — EMI × months plus fees — with paying off the cards. See flat vs reducing interest rates to compare offers correctly.
- Use the loan to clear the cards in full on the day it is disbursed.
- Stop the cycle: set up auto-pay for the full card bill and keep spending within what you can pay each month.
The biggest risk in consolidating debt is running the cards up again while paying off the loan. That leaves you with both debts. If that has happened before, consider lowering your card limits.
Then build a buffer
Most card debt starts with an unexpected expense. Once the debt is under control, build an emergency fund so the next surprise does not go on the card. Clearing card debt also helps your credit score — see how your credit score changes your loan rate.
Calculate your saving
Enter your card balance at the card’s yearly rate in the Personal Loan EMI Calculator to see what it really costs to repay over a year or two, then repeat at the personal loan rate you have been offered. The difference in total interest is your saving.
This article is for general information only and is not financial, tax or legal advice. Rates, rules and products change — check current terms with your lender or a qualified adviser. Disclaimer.