When you’re looking to pay off high-interest credit card debt, doing a balance transfer to a 0% APR credit card or taking out a personal loan are two powerful strategies. Deciding which option is best for you will depend on how much debt you’re carrying, how long you need to pay it off and how good your credit score is.
If you’re struggling with high-interest debt like credit cards, consolidating can help you save money on interest and pay it off faster. Two popular options are balance transfer credit cards and personal loans. But how do you choose which is better for you?
I compared balance transfers versus personal loans as debt consolidation tools. Here’s what I learned about the pros, cons, costs, and best uses for each.
What is a Balance Transfer Card?
A balance transfer credit card lets you move debt from other cards onto the new card. Many offer a 0% promotional APR for 12-21 months. You pay no interest during this time, so more of your payments go to pay down the principal.
Pros
- 0% APR for over a year on average
- Pay no interest during the promo period
- Can help pay off debt faster
Cons:
- Balance transfer fee of 3-5%
- Short 0% APR period
- For credit card debt only
Balance transfer cards work best for smaller credit card debts you can pay off within the 0% period. They give you a set window of time to consolidate at 0% interest before the standard purchase rate kicks in.
What is a Personal Loan?
A personal loan provides a lump sum of cash you repay in fixed monthly installments over 1-7 years. Interest rates are fixed as well, typically from around 6-36%.
Pros:
- Pay off multiple debts in one place
- Fixed monthly payment
- May qualify with fair/poor credit
Cons:
- No intro 0% APR period
- Origination fees from 1-10%
- Loan takes longer to pay off
Personal loans allow you to consolidate any type of unsecured debt, even from multiple sources. This simplifies repayment with one predictable monthly bill
Key Differences
| Factor | Balance Transfer Card | Personal Loan |
|---|---|---|
| Type of debt | Credit cards only | Any unsecured debt |
| 0% intro APR? | Yes, 12-21 months typically | No |
| Amount | Lower, often <$15,000 | Higher, often up to $50,000+ |
| Credit needed | Good to excellent | Fair to excellent |
| Time to repay | Shorter, <2 years ideal | Longer, 1-7 years |
When a Balance Transfer Is Better
Best for consolidating credit card debt only. Balance transfer cards are tailored for credit card consolidation. Many won’t let you transfer over other debt types like medical bills or personal loans.
Works for small balances you can repay quickly. Balance transfer limits often max out around $15,000. And you need to pay off the debt before the 0% APR ends. Balance transfers work best for smaller amounts you can eliminate in under 2 years.
You have good credit. Issuers generally require credit scores of 690+ for balance transfer offers with the best terms. If your score is lower, you may not qualify.
When a Personal Loan Is Better
You have varied debt types. Personal loans provide more flexibility. You can use funds to pay off credit cards, medical debt, payday loans, or other unsecured debts in one shot.
You need a longer repayment term. Personal loans give you 1-7 years to pay back the money borrowed. This accommodates larger, long-term consolidation needs.
Your credit score is fair or poor. While good credit rates are lower, personal loans are available even with poor credit (scores under 580). This expands options if balance transfers aren’t approved.
Compare Costs of Each
Balance transfer cards – 0% APR, but a one-time balance transfer fee of 3-5% on the amount moved.
Personal loans – No transfer fee, but ongoing interest from 6-36% plus potential 1-10% origination fees.
Even with fees, consolidation loans and cards offer big interest savings over high-rate debts like credit cards at 16-25% APR. But run the numbers for your specific debt situation to see which option offers more savings.
Tips for Success with Debt Consolidation
Here are a few pointers if you pursue a balance transfer or personal loan:
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Stick to your repayment plan. Make at least the minimum monthly payment every month. Set payment due date alerts so you never miss one.
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Avoid running up card balances again. Consolidating won’t help long-term if you rack up more high-interest credit card debt after paying it off.
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Focus on reducing spending. Create a budget that accounts for your new consolidated payment but still leaves room for necessities and savings.
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Consider credit counseling. If debt has become unmanageable, a nonprofit credit counseling agency can help you get back on track at little or no cost.
Which Is Better for You?
As you evaluate balance transfer cards versus personal loans, think about:
- What specific debts do you need to consolidate?
- How much money do you need to pay them off?
- How long will it take you to repay the amount borrowed?
- Does your credit score qualify you for the best offers?
This information will guide you towards the most affordable debt relief option for your situation. Consolidating high-rate balances can provide major interest savings and simplify repayment as you become debt-free.
How do I get a balance transfer card?
Before applying for a new balance transfer card, evaluate how long of a 0% intro APR you need, how high of a balance transfer fee you’re willing to pay and what issuer or issuers your current debt is with (again, you can’t transfer debt between cards from the same issuer).
Based on our research of cards available through LendingTree, as well as top cards offered by major issuers, here are some of our top picks for balance transfer cards offering generous intro APR periods:
When is a personal loan for debt consolidation best?
You could consider using a personal loan to pay off your credit card debt if you have a large amount of debt and don’t think you’ll qualify for a high enough credit limit to cover it, you need more time to pay off your debt than the average 12- to 21-months that a balance transfer card might offer or you’re not sure your credit score is good enough to qualify for a balance transfer card. While you will pay interest with a personal loan, the rate may be considerably lower than what you are currently paying on your debts. Just be aware that if your credit score’s not great, you might get approved for a personal loan — but it could have a high APR.
If you’re struggling to get out of debt and a poor or fair credit score is a barrier, it might be worth considering working with a nonprofit credit counselor. A credit counselor can help you evaluate your options, and depending on your situation, might act as an intermediary between you and your creditors to put you on a debt management plan. While a debt management plan will negatively impact your credit score and take a few years to complete, it can be a lifeline if you’re feeling buried in interest charges and your balances keep climbing.
BALANCE TRANSFER v. DEBT CONSOLIDATION LOAN – are any right for you?
FAQ
Can you do a balance transfer on a personal loan?
Is personal loan balance transfer a good idea?
Do balance transfers hurt your credit?
Can I pay my loan with balance transfer?