Personal Loans Versus Credit Card Debt?

By Upstart Content Team | Updated June 5, 2014
reading time 3 min read
Blonde Woman in black and white - Upstart Personal Loans

Credit cards are like energy drinks: an easy way to get a quick boost, but not a sustainable long-term solution.

The convenience of credit cards makes it easy to think of them as a default source for all cash needs. But below are six things you should consider when comparing a personal loan vs credit cards.

1. Personal Loans have fixed (and often lower) rates

The most basic point of comparison is the cost of borrowing. According to, the most popular credit card for people with credit scores between 660-699 has an APR of 24.99%. That’s 5% higher than our maximum APR of 19.9%.

Credit cards often offer a low introductory rates, but after that initial introductory period, your rate will shoot up to the standard rate. There are no surprises with a fixed-rate personal loan: your interest rate and monthly repayments never increase.

2. Using your card’s credit limit hurts your credit score

Using a credit card for large purchases increases your debt to credit ratio, which can hurt your credit score. For example, if you have a credit card with a $5,000 limit, and you charge $4,500, then you are utilizing 90% of your credit. Keeping your credit utilization around 10% will improve and maintain your credit score.

On the other hand, personal loans give you an opportunity to diversify the types of credit that you use. Having a healthy variety of credit sources is one of the five categories used to calculate credit scores.

3. Fixed term personal loans make it easier to stick to a budget

The unexpected expense is budget kryptonite. It is much harder to stick to your savings goals when your monthly bills are inconsistent. A personal loan takes the guess work out of the equation—the amount borrowed, payments, and timeline for repaying are all known quantities. Your debt is steadily flowing in one direction.

With credit card debt everything is in flux, making it difficult to know what your monthly bill will actually be. The psychology of credit cards makes it easy to overspend and get stuck in the “minimum payment trap,” prolonging your repayment schedule and wasting money on interest payments.

When you pay for an item with a credit card it’s easier to spend more money. McDonald’s found that the average transaction rose from $4.50 to $7.00 when customers used plastic instead of cash. Those little extra expenses add up and siphon funds that could be earning interest out of your savings.

4. A late payment on your personal loan won’t trigger a rate re-pricing

A late credit card payment will likely cost you $25- $35 and a 23-30% penalty APR. Studies have shown that credit card companies collect more than $20 billion in penalty fees each year.

A late payment on a personal loan will typically cost you a $15 late fee, but your interest rate will remain the same. Additionally, online lenders tend to be smaller companies who are going to be more willing to work with you. Upstart personal loans enable you to set up automatic payments and sends friendly reminders beforehand, so you can avoid this whole mess in the first place.

5. A personal loan simplifies and consolidates your debt

The average American has about 4 credit cards, each of which comes with its own terms, interest rate, and billing schedule. It can be hard to keep track of all of that. A personal loan enables you to consolidate all of those variables into a single place. Behavioral finance shows that the fewer decisions you have to make the more likely you are to save.

6. The Best personal loans offer better customer service

Credit card companies are massive and expensive to operate. If you have a problem with your card, getting someone on the phone who has the authority to resolve the problem can be a daunting task.

Online lenders tend to be smaller companies with less overhead, which means a better customer experience for borrowers. Upstart’s friendly support team is eager and able to help answer any of your questions. And our interests are aligned with yours when it comes to easing and reducing your debt.<!––>


This content is general in nature and is provided for informational purposes only. Upstart is not a financial advisor and does not offer financial planning services. This content may contain references to products and services offered through Upstart’s credit marketplace.

About the Author

Upstart Content Team

The Upstart Content Team shares industry insights, practical tips, and borrower success stories to help people better understand the important “money moments” of their lives.

More resources you may be interested in

How to Evaluate an Online Loan for Your Needs
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Top 6 Online Personal Loan Pitfalls to Avoid
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How to Get a Personal Loan Without Increasing Debt

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