Pay Personal Loan with Credit Card? Avoid Hidden Traps

If you're juggling a personal loan and a credit card, you might wonder if it's feasible to pay off one with the other. This is a common query for many Australians managing multiple debts. Understanding your options can make a significant difference in your financial journey, potentially saving you money and stress. Let’s delve into whether you can pay a personal loan with a credit card and what this entails for your financial health.

Understanding Paying Personal Loans with Credit Cards

Paying a personal loan with a credit card might seem like an appealing option, especially if you're feeling the strain of high-interest rates or are struggling to keep up with payments. However, it’s important to grasp the nuances of such a move. Typically, personal loans are structured with fixed interest rates and repayment terms, while credit cards offer revolving credit with more flexibility but often at higher interest rates.

In Australia, transferring debt from a personal loan to a credit card is not straightforward. Most credit card providers do not allow you to directly pay off a personal loan with a credit card. Instead, you may need to consider a balance transfer or a cash advance—each with its own risks and considerations.

Current Market Insights and Options

In 2026, the Australian financial landscape offers several avenues to explore when considering paying a personal loan with a credit card:

• Balance Transfers: Some credit cards offer balance transfer facilities, allowing you to transfer the balance of a personal loan to a credit card with a lower interest rate. However, these offers typically apply to existing credit card balances, not loans.
• Cash Advances: You could use a credit card to obtain a cash advance, which can then be used to pay the personal loan. Be aware, cash advances often come with higher interest rates, averaging between 19% to 25%, and may also incur additional fees.

Interest rates for personal loans in 2026 typically range from 6.49% to 12%, depending on the lender and your creditworthiness. Credit card interest rates, on the other hand, can range from 13% on low-rate cards to upwards of 20% on rewards cards.

Steps to Consider When Using Credit Cards for Personal Loan Payments

If you're set on using a credit card to manage your personal loan, here’s a step-by-step guide:

1. Evaluate Your Credit Card Terms: Check your current credit card terms to understand the interest rates and fees, specifically for cash advances or balance transfers.
2. Consider a Balance Transfer: If your credit card offers a balance transfer at a lower rate, this might be a viable option to consolidate debts. Remember, these offers are often promotional and revert to higher interest rates after a set period.
3. Explore a Cash Advance Option: If you choose a cash advance, calculate the total cost, including fees and interest, to ensure it’s a cost-effective solution compared to your personal loan rate.
4. Consult with a Financial Advisor: Speak with a financial advisor or broker, like those at Esteb and Co, who have access to 83+ lenders and can provide tailored advice on managing your debts effectively.
5. Implement a Payment Plan: Once you've made a decision, establish a payment plan to manage your new credit card debt and avoid falling into a debt cycle.

Expert Tips and Considerations

Here are some considerations to keep in mind:

• Watch Out for Fees: Credit card transactions such as cash advances often incur hefty fees; ensure you factor these into your cost calculations.
• Protect Your Credit Score: Frequent credit inquiries and high credit utilisation can negatively impact your credit score. Always consider the long-term effects.
• Budget Wisely: Establish a budget to ensure you can meet your new repayment obligations and avoid further debt accumulation.
• Understand the Risks: Moving debt from a personal loan to a credit card can be risky due to higher interest rates and the temptation for additional spending. Only pursue this option if you're confident in your repayment plan.

Frequently Asked Questions

1. Can I pay off my personal loan with a credit card in Australia?
Most credit card providers do not allow direct payment of personal loans. Options like balance transfers or cash advances may work, but they come with conditions and risks.

2. What are the risks of using a credit card to pay a personal loan?
High interest rates, cash advance fees, and potential damage to your credit score are significant risks. It can also lead to a cycle of debt if not managed carefully.

3. Are balance transfers a good option for paying off personal loans?
Balance transfers can be a good option if they offer a lower interest rate than your personal loan. However, they are usually applicable to existing credit card debt, not loans.

4. What should I consider before using a cash advance to pay a personal loan?
Consider the high interest rates and fees associated with cash advances. Calculate the total cost and compare it to your current loan terms before proceeding.

5. How can Esteb and Co help with my debt management?
With access to over 83 lenders, Esteb and Co can provide tailored advice and options suited to your unique financial situation, helping you make informed decisions.

In conclusion, while paying a personal loan with a credit card isn't straightforward or often advisable, understanding your options and the implications can help you make better financial decisions. Always consult with financial experts to tailor the best strategy for your needs.