Balance Transfer Card or Personal Loan: Which Is Right for You?
Compare two smart ways to consolidate debt: a balance transfer or a personal loan.
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Updated · 3 min read
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Nerdy takeaways
Two popular ways to consolidate debt include a balance transfer credit card or a personal loan.
Balance transfer credit cards are best for borrowers with good to excellent credit who can pay off their credit card debt during the 0% promotional period.
Personal loans are best for borrowers who have higher debt amounts or a mix of unsecured debts, and are available even if you have bad credit.
Balance transfer credit cards and personal loans for debt consolidation are two common tools that can help you pay off debt faster, more simply and with less interest.
But how do you choose between a balance transfer card and a personal loan? It depends on factors like the type and amount of debt you have and which financial product you qualify for.
Balance transfer vs. personal loan
A balance transfer is a consolidation strategy in which you move your existing credit card balances onto a new card that offers a 0% promotional period, then pay off the debt before that period is up. A balance transfer is best for consolidating credit card debt and is available to borrowers with good to excellent credit.
A personal loan for debt consolidation — often called a debt consolidation loan or credit card consolidation loan — is a lumpsum you use to pay off all your unsecured debts at once. You then pay back the loan with fixed interest over a set term. A debt consolidation loan is best for consolidating larger debts and is available to borrowers across the credit spectrum.
Balance transfer card
Personal loan
Type of debt
Best for paying off credit card debt only.
Best for paying off multiple types of unsecured debt.
Amount of debt
Best for smaller debts that can be paid off within the promotional period, usually 15 to 21 months.
Best for larger debts that may take one to seven years to pay off.
How to qualify
Available to borrowers with good to excellent credit.
Available to borrowers across the credit spectrum, including those with fair or bad credit.
Ability to pre-qualify with some lenders.
Costs
Includes zero-interest promotional period.
May charge 3% to 5% balance transfer fee.
Includes fixed monthly interest.
May charge 1% to 10% origination fee.
How to choose between a balance transfer or personal loan
Ask yourself these four questions to determine how to best pay off your debts.
The type of debt you have may help you determine which product is the best fit.
For example, a balance transfer card works by letting you move high-interest credit card debt to the new credit card, but you can’t typically transfer other types of debt.
A debt consolidation loan has more flexibility. You can use it to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans and existing personal loans.
2. How long will it take to pay off your debt?
How much money you owe — and how long it will take to pay it off — is another important consideration.
A balance transfer card may have a lower credit limit than a loan, so it’s best for smaller debts. These cards also have promotional APRs of 0% for a limited period of time, usually from 15 to 21 months. You’ll want to make sure you can pay off your debt within that initial period when you'll be charged no interest.
A debt consolidation loan has a longer repayment period, usually from one to seven years, and many lenders offer high loan amounts, sometimes $50,000 or higher. Though you won’t save as much money on interest, a debt consolidation loan is usually a better fit for people with higher debt who need more time to pay it off.
If you’re not sure how much debt you have, you can enter your current balances, interest rates and monthly payments in a debt consolidation calculator to get the full picture.
3. Which product can you qualify for?
Balance transfer cards and debt consolidation loans have different qualification criteria, though both look at your overall credit, so check your credit score before applying.
Borrowers with good to excellent credit (690 score or higher) may qualify for both a balance transfer card and a debt consolidation loan.
If you have fair or bad credit (689 score or lower), you may only be able to qualify for a loan. Consolidation loans are available to borrowers across the credit spectrum.
Depending on the lender, you may be able to pre-qualify for a personal loan, which means you can check potential loan terms without hurting your credit score.
4. What are the costs?
Finally, compare the costs of consolidating with each product. Though balance transfer cards come with a promotional 0% APR period, many charge a balance transfer fee, which is typically 3% to 5% of the total amount transferred.
Debt consolidation loans charge 6% to 36% APR, depending on your credit profile, debt-to-income ratio, desired loan amount and repayment term. Some lenders charge an origination fee that covers the cost of processing your loan. This is an upfront fee that ranges from 1% to 10% of the loan amount.
Keep in mind that even with these fees, a balance transfer card or debt consolidation loan may have a lower APR than your current debts, so you can still save money.
Consolidating can be an effective way to get a handle on your debt. But it won’t address spending habits that led to getting a balance transfer or personal loan.
Establishing a realistic budget can help you keep spending in line; the budget should include debt payments as well as money for things you need and want to buy.
If you’ve been racking up debt to pay for basic necessities like food or utilities, local charities that provide assistance with groceries, rent, household bills and transportation may be better alternatives to borrowing.
It’s important to avoid running up large balances on the credit cards you’ve paid off. A debt consolidation loan or balance transfer card won’t be helpful if it ends up breaking your budget and pushing you further into debt, hurting your credit score.
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