6 times it's smarter to use a personal loan instead of a credit card

Credit cards offer perks such as flexibility, rewards and bonuses, but when used irresponsibly, can create a downward spiral of debt.

Personal loans are a better choice than credit cards when you need cash upfront, can't pay off a balance quickly, want to maintain a stable credit score, and need to consolidate other debt.

The main advantages of personal loans are that they have lower interest rates than credit cards, have a low impact on your credit score, and have a structured repayment plan.

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Let's be honest: Credit cards are kind of fun. They're incredibly convenient, putting everything you want just a swipe or chip-insert away. Each purchase accrues more points or miles that can eventually be redeemed for perks like cash back or a free international flight.

But if you aren't using them responsibly and paying your full balances on time, misusing credit cards is an easy way to take on expensive debt and ding your credit score.

Credit cards aren't the only way to get access to money. Personal loans are a less immediate, but often less risky, line of credit. There's absolutely a time and place for using credit cards, but sometimes, personal loans are the better option of the two.

When personal loans are better than credit cards

1. When you need cash upfront

“The ideal reason to use a personal loan over a credit card is when you need to make a major purchase that could use up half or more of your available card credit and you don't plan to pay off the balance right away,” says Michael Cetera, a Senior Credit Analyst at FitSmallBusiness.com. “Putting this level of expense on your credit card could have a negative impact on your credit score.”

Splurges like new computers, furniture, or upgrading your mattress can cost more money than you might have on hand. However, many retailers will offer financing through a store credit card with a sweet 0% intro APR — an opportunity you should definitely take seize if you know you'll pay the full balance within the introductory period.

However, for large purchases that don't have such convenient financing options, like a medical procedure, car repairs or a home renovation, a personal loan will give you liquid cash so you can move forward with the needed expenditure.

2. You want a lower interest rate

Personal loans are specifically designed for paying over the long term, so their interest rates are tailored to be fair and conducive to paying off a debt. Though the APR on your personal loan depends heavily on your credit score but can easily be under 10%, whereas the average credit card APR is 17.72%. Credit cards makes very little sense as a long-term revolving debt, unless you have a 0% intro APR offer.

3. You can't pay off the balance quickly

The higher interest rates on revolving credit card balances are a huge downside to financing major purchases on a credit card. If you know that you won't be able to pay off a balance for a long time, financing a purchase on a credit card will cost much more money in the long run than it would to pay for it using a personal loan.

4. You're worried about impact on your credit score

“A heavily weighted factor when it comes to your credit score is your utilization ratio, which is the percentage of credit you have outstanding relative to the total amount of credit available to you,” says Lauren Anastasio, a financial planner at SoFi. “Carrying a large balance on a credit card, regardless of interest rate, will likely jack up your utilization ratio, which can dramatically lower your credit score.”

Taking out a personal loan will make a ding on your credit score when your lender conducts a hard inquiry, but it will quickly come back up to its previous number if you make regular payments. However, revolving debt on your credit card, especially approaching 30% or more of your total available credit, can drag your score down and keep it there until you start to pay it off.

“Generally speaking, installment loans (personal loans, mortgages, car, or student loans, etc.) are more favorable for your credit than revolving debt (lines of credit and credit cards),” says Anastasio. “Installment debt is deemed less risky than revolving debt. Having installment debt on your credit history can actually be helpful in boosting your score.”

5. You want to have a structured payment schedule

One of the greatest differences between credit cards and personal loans is the way they are disbursed, and thus, the way they are paid back. Credit card repayment is based on the current balance held, which can grow based on your spending and on interest for an unpaid balance. They only require a minimum payment each month to cover interest charges. You can take as long as you want to pay off a credit card balance, but the longer you take, the more interest you pay.

Personal loans, however, just disburse liquid cash to you in one lump sum, and come with a built-in repayment game plan. You know exactly how much you will have to pay back each month, you know how much will go to interest and how much will go to the principal, and you know the exact date you will be done paying.

Cetera describes personal loans as a “way to discipline yourself to pay off the loan. Credit cards are open-ended loans, meaning you don't have to pay them off at any particular time. A personal loan has a term — it could be six months; it could be three years — and you'll make fixed payments. Having this schedule may be beneficial for people who otherwise have trouble paying down credit card debt.”

6. You want to consolidate other debt

Credit cards offer balance transfers for borrowers who want to move debt from one card to another. However, this only makes sense when the card you're transferring to has a 0% APR period. Otherwise, you would be paying a much higher interest rate on the revolving balance than you would with a personal loan.

Personal loans are the best option for debt consolidation, because they offer lower interest rates, fixed payment plans, and alleviate any strain on your debt-to-credit ratio.