Key Takeaway: A balance transfer card is best if you can qualify for a low or 0% introductory APR and pay off what you owe before the introductory period expires. Personal loans are a better option if you want to consolidate large amounts, have multiple types of debt or need a longer repayment timeline.
Both balance transfer credit cards and personal loans can help you consolidate high-interest debt, simplify your payments, reduce interest charges and pay off what you owe faster. With a balance transfer, you may avoid paying interest entirely, but you must pay a fee to complete the transfer, and repayment timelines are short compared to personal loans.
Personal loans give you more time to repay what you borrow and often have lower interest rates than credit cards. Loan maximums are generally higher than balance transfer limits, but you have to pay interest from day one, and personal loans may also come with fees.
If you’re looking to consolidate debt, here’s what you need to know to decide which method is right for you.
- What’s the difference between a balance transfer card and a personal loan?
- When does a balance transfer card make more sense?
- When does a personal loan make more sense?
- Is a personal loan or balance transfer card better?
- How do I pay off my debt with a personal loan or balance transfer card?
- FAQs about balance transfers vs. personal loans
What’s the difference between a balance transfer card and a personal loan?
A balance transfer card lets you move debt from one credit card to another, often with a low or 0% APR introductory rate. When the transfer is complete, you make monthly payments on the new card until you pay off the balance.
With a personal loan, you borrow a lump sum that you repay, with interest, in equal installments over the life of the loan. You typically need good or excellent credit to qualify for a balance transfer, but personal loans are available to borrowers with a range of credit profiles.
Here’s a breakdown of the key features of both debt consolidation methods.
Interest charges
With a balance transfer, you won’t have to pay interest on the amount you transfer if you qualify for a 0% introductory APR and pay off what you owe before the promotional period ends. If you don’t, the remaining transfer balance will accrue interest at the card’s regular balance transfer rate.
Personal loans don’t have low introductory rates, so you’ll start paying interest as soon as your loan is funded. But personal loan interest rates remain the same throughout the loan term and may be lower than your card’s regular balance transfer rate.
Fees
Balance transfer fees generally range from 3% to 5% of the transfer amount, with a minimum fee of $5 or $10. Some personal loans have origination fees, which generally range from 0% to 8% of the loan amount. But if you have good or excellent credit, you may qualify for a personal loan that doesn’t have an origination fee.
Loan limits
You can typically borrow more with a personal loan than you can transfer to a balance transfer card. Balance transfers are limited to your available credit line, and some issuers may cap transfer amounts at a percentage of your credit limit or a specific dollar amount, depending on the card. Personal loan limits vary by lender, but may be as high as $100,000.
Repayment timelines
Personal loans have longer repayment timelines — they can range from 24 months to 84 months. The introductory period for a balance transfer card usually only lasts from six months to 21 months.
Credit impact
Applying for either a balance transfer card or a personal loan will generate a hard credit inquiry. And if you’re approved, opening a new credit account or loan will reduce the length of your credit history. This can hurt your credit scores at first, but the result is typically temporary and may be offset by a drop in your credit utilization ratio.
Getting a balance transfer card decreases your utilization by increasing your available credit, while a personal loan takes your utilization to 0% when you use it to pay off your credit card balances. Having a low credit utilization usually helps your credit scores.
Balance transfer cards vs. personal loans: Fees, limits and APRs
| Balance transfer credit cards | Personal loans (installment, unsecured) | |
|---|---|---|
| Fees | Balance transfer fee of 0%, 3% or 5% of the amount transferred | Origination fee of 0% to 8% of the loan amount |
Credit limit or loan amount | $500 to $15,000+ | $1,000 to $100,000 |
Interest rate | Low or 0% introductory rate followed by the card’s regular balance transfer APR | 5.96% to 35.99% APR |
| Repayment timeline | 6 to 21 months | 24 to 84 months |
When does a balance transfer card make more sense for debt consolidation?
A balance transfer card may be a good option if …
- You have good or excellent credit. You typically need a strong credit profile to qualify for the best balance transfer offers.
- You want to consolidate credit card debt. Balance transfer cards make it easy to move balances from one or more credit cards to a new card. Typically all you need is some information about your existing accounts and the amount you want to transfer.
- The interest savings offsets the balance transfer fee. If it doesn’t, transferring a balance will just move your debt around. It won’t help you save or pay it off faster.
- You can pay off the transfer amount before the introductory period expires. Your remaining transfer balance will accrue interest at the card’s regular balance transfer APR if you don’t pay it off before the end of the promotional period.
- You have a solid repayment plan. You could lose your promotional rate if you pay less than the minimum due, make your payment late or miss a payment.
- You won’t be tempted to use your new card for purchases. It’s best to keep balance transfers separate from purchases. They may have different interest rates, which can make it difficult to track.
When does a personal loan make more sense for debt consolidation?
Using a personal loan for debt consolidation may be your best bet if …
- You want to consolidate multiple types of debt. You can streamline your finances by combining a mix of debts, including credit cards, medical bills and more.
- You owe a sizable amount. Maximum personal loan amounts typically exceed credit card limits.
- You want a longer repayment timeline. Personal loan terms are typically longer than the promotional period on a balance transfer card, and the interest rate on a personal loan may be lower than a credit card’s regular balance transfer APR.
- The monthly payments fit into your budget. Personal loans have fixed monthly payments that make it easy to budget. But they don’t offer the flexibility of a credit card, which allows you to vary your payments from month to month.
- You’ll save money. Calculate the cost of getting a personal loan, including interest charges and fees and compare it to the cost of your current debt.
Is a personal loan or balance transfer card better?
A personal loan is usually better if you have multiple types of debt or a significant sum you want to consolidate. It’s also a good option for borrowers who want a longer repayment timeline and predictable monthly payments. But if you can qualify for a low or 0% introductory APR offer on a balance transfer card and repay the transfer amount before the introductory period ends, a balance transfer may be a better bet.
Before choosing either option, compare potential rates and fees with what you’re currently paying to calculate your potential savings. If consolidating your debt won’t save you money, it may not make sense.
How do I pay off my debt with a personal loan or balance transfer card?
Here’s an overview of the steps you need to take to pay off debt with a personal loan and balance transfer card.
How to pay off debt with a balance transfer
- Check your credit. You can review your credit reports and VantageScore 3.0 credit scores from Equifax and TransUnion for free through your Credit Karma account to get an idea of where you stand.
- Compare your options. Many card issuers let you prequalify to see how likely you are to be approved before submitting a formal application. A balance transfer calculator can help you estimate your savings.
- Apply for the card. It typically takes just a few minutes to apply, and you can complete the process online.
- Request the balance transfer. It can take anywhere from a few days to several weeks to complete the transfer, depending on the issuer. You’ll need the account details for your debt to initiate the balance transfer.
- Keep paying your old card. Your existing card will carry a balance until the transfer is complete. Stopping your payments too soon could result in late fees and delinquencies on your credit report.
- Pay down the balance on your new card. Make your payments on time each month to keep your introductory rate. If you can, pay off your balance before the intro period ends. But if you can’t, paying off as much as you can before the intro APR is over can help you to save on interest charges.
How to pay off debt with a personal loan
- Check your credit. With Credit Karma, you can see your credit reports and VantageScore 3.0 credit scores from Equifax and TransUnion anytime. You’ll generally need good credit or better to qualify for the best terms.
- Compare lenders. Many lenders let you apply for prequalification to see your estimated rate and loan term without affecting your credit. But prequalifying isn’t a guarantee for approval and your final terms may differ.
- Choose an offer and apply. Select the loan that best fits your needs and budget. Complete the lender’s application and submit the required documents. This will generally result in a hard credit inquiry.
- Pay off your credit cards. Some personal loan lenders make direct payments to your creditors. If yours doesn’t, use the loan proceeds to pay your creditors yourself.
- Make your loan payments on time. Late payments can hurt your credit, and an on-time payment history is one of the biggest factors to your credit scores.
- Keep your credit card balances low. Avoid using your credit cards or use them only for essentials that you have the cash to cover. Pay your balance in full each month to avoid racking up additional interest charges.
What are alternatives for debt consolidation other than a personal loan or balance transfer card?
- Home equity loan or HELOC — If you own a home, you may be able to borrow against your equity, sometimes at a lower rate than a personal loan. That said, closing costs can be high, and your home is the collateral, so falling behind could put you at risk of foreclosure.
- Debt management plan: You must work with a credit counselor to participate in a DMP. With a debt management plan, you make a single monthly payment to the credit counseling organization, and it disburses the funds to your creditors each month. It doesn’t reduce the amount you owe, but your credit counselor may be able to negotiate lower interest rates or get fees waived, which can make your payments more manageable.
- Keep paying off your existing cards: You don’t need to consolidate your credit card balances to pay them off. You can use one of two common credit card payment methods — snowball or avalanche — to pay down your debt. With the snowball method, you make the minimum payments on all your accounts and put extra money you have toward the smallest balance first. Focusing on the smallest debt gives you a quick win, helps you gain momentum and provides motivation to stick with your repayment plan. If you opt for the avalanche method, you put extra funds toward the account with the highest interest rate to minimize interest charges and get out of debt faster.
What’s next?
You may be able to avoid interest charges with a balance transfer card if you pay off what you owe during the promotional period, but personal loans allow you to consolidate larger amounts of debt and give you more time to repay what you borrow.
After deciding how much and what types you want to consolidate, compare the costs of each consolidation method with your current debt and evaluate your credit and budget to determine which option makes the most sense for you.
Credit Karma can help you compare debt consolidation loan and balance transfer credit card offers and see your approval odds based on your credit profile.
FAQs about balance transfers vs. personal loans
Balance transfers and personal loans can affect your credit in multiple ways. Applying generates a hard credit inquiry, and if you’re approved, the new account will shorten the length of your credit history, which may temporarily decrease your scores. But consolidating your debts also helps reduce your credit utilization, which generally has a favorable impact on your credit scores.
A balance transfer is generally better if you can qualify for a 0% APR introductory offer and pay off the transfer amount before the promotional period expires. A personal loan is typically better if you want predictable monthly payments, to consolidate multiple types of debt or have larger amounts you want to repay over a longer timeline.
Yes, but it may not be a good idea. If you pay off your credit cards with a balance transfer or personal loan, continuing to use your credit cards can result in additional debt. If you keep using them, only make purchases you can pay in full each month.
When you use a personal loan to pay off credit cards, you risk racking up more debt on your credit cards and not being able to make your loan payments on time each month. If you use a personal loan for debt consolidation, select one with a monthly payment that fits your budget, and use your credit cards responsibly.
Your old credit card remains open, and if you didn’t transfer the full balance, you must continue making payments every month. If it has a $0 balance, the account stays open unless you close it. It’s usually a good idea to keep the account open even if you don’t use the card to maintain a longer credit history.
A balance transfer generally costs 3% to 5% of the transfer amount with a minimum fee of $5 or $10. Exact fees vary by issuer. For example, transferring $5,000 with a 3% fee would cost $150. But beyond that, you generally won’t have addition charges during the intro APR period unless you miss a payment.