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Should We Get a Loan to Payoff Our Cards to Boost Our Credit Score? – Chris

Written by Steve Rhode


Dear Steve,

Are fixed rate personal loans better than revolving credit (credit cards) for your credit report?

I’ve seen different opinions on this so thought I’d ask the expert. Because of a business that failed we ran up some hefty credit card debt ($15k+). Would it be better for our credit score if we paid off high credit card balances with a fixed loan?

The monthly payment would definitely go down if we did a 5 year loan based on what I’ve calculated using a conservative interest rate, but what would the affect be on our credit score? We don’t use the cards anymore (unless it’s a dire emergency) and I’m not concerned about running them back up once they are paid down as we are well aware of the pitfalls. Appreciate the advice.



Dear Chris,

I love this question. Thanks for asking.

The bottom line is this is a math problem. Would it be better to repay debt at a lower interest rate? Yep.

So you have to ask yourself if the most important factor here is a credit score or your financial repayment.

Ultimately, if the balances are high on the cards then shifting half that debt or more to another loan will help your balances to not be so maxed out. Get them below 30% of the limit to get the biggest boost.

The addition of the new loan will be another credit entry to report on-time payments and shifting the balances to the loan doesn’t really improve your debt to income ratio. You have the same level of debt, just shifted around.

But whatever you do, DO NOT close the credit cards if you pay them off. The length of time you’ve had the cards plays a role in your credit score.

People think about their credit score all wrong. They think it is a measurement of how well they manage their finances. It’s not. It is a score created by lenders to try to quickly estimate who will be the least risky or most profitable to lend to. Creditors want you to open and keep their cards. Not close them.

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I’m a big fan of the credit score calculator at and it can show you how any changes you might make will impact your score.

But just logically, shifting the debt so it is less expensive to repay and not closing the cards should be a big benefit.


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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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