Weighing Options - Personal Loan vs. Aggressive CC Payments


I'm new to YNAB, but already feel such a sense of relief just having a plan and a tracking tool that makes sense to me. My biggest goal is to pay off my credit card debt, and start building savings to avoid getting into debt again. Eventually I'll have to tackle my student loan debt, but that's on hold until the fall. 


I owe about $8,000 on my cards (13.9% interest rate) and I'm trying to decide whether I should take out a low-interest personal loan to pay off my CCs or just be as aggressive as possible in making my CC payments. Here are the options I'm weighing:


a.) After budgeting for monthly bills and contributing a little to my true expenses, if I put every single extra dollar towards credit card payments, I believe I could completely pay them off by December 2021/January 2022

b.) Take out a 24-month personal loan with 5.9% interest rate and use the money I would have budgeted toward payments to build savings faster.


Both feel like they could have significant benefits - the idea of being out of consumer debt by the end of the year is very attractive, but taking a loan with a lower fixed monthly payment would give me a lot more padding to budget for true expenses and put money into savings for true emergencies.  I'm curious if anyone has advice or could share how they made a similar decision!

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  • Definitely a personal choice because you have to decide which makes you feel more secure. 

    In starting out with YNAB, we often find out that we have way more true expenses than we knew/imagined. Would you be okay with more of your planned credit card dollars go to those? Will it frustrate you that you are not meeting your goal? Could it wipe out progress because you throw your hands up and feel like it is not worth it? If that is the case, you may want to go with the loan. You would also have to ask yourself if you were willing to give up other expenses to keep yourself on track with your current plan.

    Having a steady state of repayment with a known end date and not getting thrown off track by other expenses might make better sense. Yes, it might take longer but then you have flexibility for unknown expenses. Also, if you have more money available down the road, you could pay off the loan early if that is an option.

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  • From a total cost persepctive, the difference in interest based on your completion dates will result in the personal loan being about $100-$150 less expensive and provide better cash flow.

    The real questions are:

    1) whether you can stay on track
    2) whether you will or will not incur new credit card debt from falling back into old habits

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    Getting out of debt is never really about the interest rate.  It's more about the focus month to month and putting as much toward it as you can.  I'd keep things as they are and just pay as much towards the cards as I can.  Doing that, my wife and I paid off 55k in debt in 20 months and never refinanced anything.

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  • Personally, I'd be looking for opportunities to transfer some or all of that CC debt to a 0% card rather than taking on a personal loan. But as nolesrule says, the real question is what is your plan to not rack up new CC debt when this is all paid off?

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  • Would it be possible to transfer to a 0% credit card and make payments on that? As others have said it really comes down to how comfortable you feel. You just need to make sure you don't fall back into that trap.

  • In principle I prefer to avoid loans wherever possible. Unless extremely needed of course.

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