Australians owe around $45 billion in total credit card debt. Many people are trapped in a vicious cycle of debt with cards charging interest as high as 20%.

If you're struggling under the weight of debt, paying off your credit card with a personal loan at lower interest could leave you better off, but there are a few things to consider.

Advantages of a personal loan

Consolidating debt with a personal loan can instantly reduce the interest you're paying and avoid fees and penalties, as long as you can meet the monthly repayments. Some of the reasons to consider a personal loan are:

  • Lower interest – the interest rate of your loan will depend on your credit score, the loan amount and the lender you choose, but they are typically lower than credit card rates.
  • Unsecured – most personal loans are unsecured, meaning you don't have to put down collateral such as property or a vehicle. If you choose a secured loan, these usually have even lower interest rates, but there's a risk that the asset will be repossessed if you can't make your payments.
  • Fixed term – your loan repayments will be calculated based on the duration of the loan, so unlike a credit card that can trap you in spiralling debt, there'll be a clear end date, as long as you make your payments on time.

A shorter loan term will involve higher monthly payments, while a longer term will mean you pay less each month but more overall.

Is a personal loan right for me?

If you qualify for a personal loan with a good interest rate, you could have more money left over each month and feel less stress. However, this isn't an option for everyone.

Personal loans typically have a minimum loan amount of $1,000 or more, so they will only be an option if you have credit card debt in the thousands, unless you also need the loan for other reasons.

Your loan conditions will largely be determined by your credit score. So if you have bad credit, you may not be able to access a favourable loan.

As monthly loan payments are higher than the minimum payments on credit cards, you should calculate whether the term of the loan might mean you pay more in total than if you continued to pay off your card.

Try our free debt calculators

What are the alternatives?

Another option for consolidating your debt could be a balance transfer credit card, but these need to be used with caution. These offer a low introductory interest rate – often 0% APR – which means you can pay off the debt each month without worrying about it growing, at least until the offer period ends when they will revert to a high rate.

However, you may not be able to access a balance transfer credit card if you have poor credit. It might also not be a good idea to start using a credit card again if you've already had trouble keeping on top of your repayments in the past.

While a personal loan or balance transfer could be a quick fix, it's important to address the root cause of your debt problem to stop it from happening again. For confidential, no-obligation advice about how to get out of debt and what your options are, contact the Debt Fix team today on 1300 332 834.