Skip to Main Content

Debt consolidation loan vs. balance transfer credit card

Man paying credit card with balance transfer credit card
WAYHOME studio/Shutterstock
Man paying credit card with balance transfer credit card
WAYHOME studio/Shutterstock

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.

ON THIS PAGE Jump to Open page navigation

If you’re looking for an inexpensive way to pay down your high-interest credit card debt and your credit score is in good shape, you have several debt consolidation options to consider.

Two of the most popular methods to help pay down debt and save money along the way are balance transfer credit cards, which let you transfer debt from other sources and pay as low as 0 percent interest for an introductory period, and debt consolidation loans, which are unsecured personal loans that you use to pay off your other debts, often at a lower interest rate.

Snapshot: Balance transfer credit card vs. personal loan

Balance transfer credit cards Personal loans
Best for Smaller debt that can be paid off completely in a shorter amount of time Larger amounts of debt that may take years to pay off
Repayment terms Pay the balance in full by the end of the introductory period to avoid accruing interest Make fixed payments each month for the entirety of the loan
Approval requirements Good to excellent credit score required Good credit score preferred, but bad-credit loans are also available
Fees Many balance transfer credit card offers include a one-time fee, which can add up to about 3 percent to 5 percent of the total amount of debt you transfer Some personal loans charge an origination fee, which can add up to 8 percent of the total loan amount

What is a balance transfer credit card?

A balance transfer credit card typically charges you 0 percent APR on balances you transfer for a limited time. It gives you the opportunity to pay down your debt without any interest accruing during the introductory offer period, which usually lasts for 12 to 20 months. This is a simple way to use credit card refinancing for your existing debt.

Balance transfer credit cards can help you chip away at that looming pile of debt, but they must be used intentionally since they tend to have higher interest rates than other credit cards once the introductory period ends. If you fail to pay your balance off at the end of the introductory period or you keep using your credit card for more purchases, you could be stuck with more high-interest debt in the end.

Pros of a balance transfer credit card

  • Pay down debt with no interest for a limited time.
  • With no interest accruing, every dollar you pay goes directly toward the principal of your balance.
  • Some balance transfer cards come with benefits such as consumer protections or rewards on spending.
  • Most credit cards with 0 percent APR balance transfer offers don’t charge an annual fee.

Cons of a balance transfer credit card

  • Introductory balance transfer offers don’t last forever.
  • Any debt that remains when your introductory offer ends will begin accruing interest at the regular variable APR.
  • Balance transfer fees tack on 3 percent to 5 percent of your balance from the start.
  • You won’t get out of debt if you keep using your credit card for purchases.

How do I get a balance transfer credit card?

Before applying for a balance transfer credit card, check your credit reports and credit score and gather the personal information you’ll need to provide, including your income and Social Security number.

Next, compare the fees, APRs, perks and credit requirements of different balance transfer credit cards. Our list of the best balance transfer cards is a good place to start; there, you can compare offers and apply for a card that fits your needs.

Lastly, if you are curious about how your numbers work in this kind of scenario, test it out using Bankrate’s credit card balance transfer calculator.

What is a debt consolidation loan?

A debt consolidation loan is an unsecured personal loan that is used to consolidate and pay down debt. A personal loan for debt consolidation offers a fixed interest rate, a fixed monthly payment and a fixed repayment timeline. This means that you can pay down debt without any surprises, and you’ll know from the start exactly when you’ll become debt-free.

For many people, using a personal loan to consolidate debt can make debt repayment easier and more accessible. You do this by paying off your existing debts with the funds from the debt consolidation loan, and then repaying that single loan. Typically, a personal loan for debt consolidation will have a lower interest rate than those of your other debts, so you get the chance to save money.

Consolidating your debt doesn’t mean that your payments are stalled or that your debt is gone, however. It only means that you’ve moved your debt around. So while the interest payments may be less, you’ll still need to be diligent about paying the loan off on time and in full.

Pros of a debt consolidation loan

  • A fixed monthly payment and fixed repayment timeline make it easier to create a concrete debt payoff plan.
  • Get a competitive fixed interest rate for the life of the loan.
  • Repayment terms for personal loans can last many years, giving you a longer time to pay off debt.

Cons of a debt consolidation loan

  • Some personal loans charge an origination fee.
  • You won’t get 0 percent APR like you would with a balance transfer card.

How do I get a debt consolidation loan?

Before you apply for a debt consolidation personal loan, you’ll want to understand your finances and credit score and gather the information you’ll need to give lenders, such as your Social Security number and proof of income. If possible, get prequalified so that you can compare the rates and terms different lenders might offer you.

Once you choose the best offer for your needs, you’ll go through that lender’s application process. Many lenders have online applications, while others allow you to apply by phone or require you to visit a branch.

6 factors to consider when consolidating your debt

Before you decide how to consolidate your debt, you need to know the differences between a balance transfer card and a debt consolidation loan. Choosing the right option based on your situation could help you save thousands of dollars or make the process much easier based on your personality or circumstances.

As you compare debt consolidation loans and balance transfer credit cards, think over how each option might work based on the amount of debt you have. Here are six factors to consider when deciding between a balance transfer card and a debt consolidation loan.

1. Interest rates

Interest rates are the first—and probably most important—thing to look at when comparing credit cards and debt consolidation loans. Balance transfer credit cards offer an interest-free period upfront, but rates after the introductory period are generally higher than interest rates on personal loans. This is especially true if you have good credit, says credit expert John Ulzheimer.

However, there’s virtually no such thing as an interest-free personal loan. With good credit, you can find a personal loan with an interest rate in the single digits, though you’ll be pressed to find close to a 0 percent APR personal loan. As of January 31, 2022, the average interest rate for a personal loan is 10.28 percent, while the average credit card rate (after the 0 percent intro period was over) was over 16 percent.

How long the 0 percent interest period for a balance transfer credit card lasts is also a key consideration. Ask yourself what your total amount of debt is and the average payment you’d have to make to pay it all off before your 0 percent interest period ends. If you have $5,000 in credit card debt and 0 percent APR for 18 months, for example, could you afford to pay $278 per month during that timeline to become debt-free?

If you can afford the monthly payments to pay your debt off before interest kicks in, then a balance transfer card could be right for you. If not, you may want to consider a personal loan.

Why it’s important: The interest rate that you pay on a loan is the primary factor in determining your monthly payment. Choosing an option with a lower interest rate can help keep your payments down and give you a better chance of paying your debt off.

2. Fees

Many balance transfer offers include a one-time fee, which can add up to about 3 percent to 5 percent of the total amount of debt you transfer.

For example, if you want to transfer $5,000 to a new card that charges 0 percent interest for 12 months, you might be hit with a fee of $150 to $250. That’s still cheaper than a 12-month personal loan with an 11 percent interest rate, which would lead you to pay $302.90 in interest.

If you’re considering a personal loan instead, you should know that some of them charge a loan origination fee—a one-time charge that is taken out of the total amount you receive. However, banks and credit unions typically do not charge an origination fee on personal loans.

Origination fees can be as high as 8 percent of the loan amount in some cases. In other words, if you asked for a $5,000 loan to consolidate credit card debt, you might receive $4,600, with a $400 origination fee deducted from your balance.

Why it’s important: Nobody likes paying unnecessary fees, so make sure that you are aware of what fees will be charged. However, it may make sense to pay some fees to secure a lower interest rate or other favorable terms.

3. Fixed rates and payment schedule

Ulzheimer says that he favors personal loans for debt consolidation because the interest rate never changes and the loan has a fixed payoff date. With predictable payments, a debt consolidation loan can help with budgeting. If you’re not managing a credit card absolutely perfectly, then you may end up paying more for a longer time than you would have with a personal loan.

Steve Repak, a North Carolina-based certified financial planner and author of “6 Week Money Challenge,” says that he favors a balance transfer because it’s more flexible than a personal loan.

“What if you lose your job or what if something comes up, some type of financial emergency where you can’t make that $500 payment?” Repak says. “A 0 percent transfer might give you some flexibility even though it might cost you more. With a fixed payment, you’re kind of stuck with that.”

As you’re deciding how to consolidate debt, look at your situation to see which option makes sense for you. If you need help with budgeting and want fixed payments, a personal loan is a good option. If you’d prefer flexibility, a balance transfer credit card may be right for you.

Why it’s important: Paying your debt off depends on finding a repayment strategy that you can stick with. Consider whether you’d rather have the certainty of fixed monthly payments with a personal loan or the flexibility of a balance transfer credit card.

4. Credit score impacts

Opening up a new card and transferring all of your credit card balances to it might push your credit utilization ratio on that card close to 100 percent, which could hurt your credit score. Credit-scoring models also place a negative emphasis on revolving debt, so if you keep transferring the debt from one card to another, your score could go down even more.

On the other hand, taking out a personal loan to consolidate debt could lower your utilization rate to 0 percent, which could help your score. Though you aren’t really getting out of debt, just converting it, the credit-scoring models don’t see it that way, so your credit score could rise—as long as you make timely payments on your loan.

Why it’s important: Your credit utilization ratio (the amount of your available credit that you’re using) is one of the most important factors in your credit score. Keeping that low can boost your credit score and help you get better rates on future loans.

5. Credit requirements

Debt consolidation loans and balance transfer credit cards do have one important thing in common: Lenders in both spaces offer the best rates and terms to individuals with very good or excellent credit—or any FICO score of 740 or above. With that being said, consumers with “good” credit scores (FICO scores from 670 to 739) might also be approved for either option depending on the lender.

If your credit score is lower than that, it’s unlikely that you’ll find a balance transfer credit card you can qualify for. There are some secured credit cards with balance transfer offers, but they do not give you 0 percent APR for a limited time, and you’ll have to put down a cash deposit as collateral.

Conversely, it’s possible to qualify for a debt consolidation loan with bad credit, but you should expect to pay a higher interest rate overall. With that being said, a bad-credit loan could still help you save money, provided your new interest rate is lower than the current rates you’re paying.

Why it’s important: You’ll want to know what your credit score looks like and how that affects the rates you can get. The better your overall credit profile, the better interest rates and terms you’ll be able to get.

6. Types of debt

As you compare debt consolidation loans and balance transfer credit cards, it can also help to think about the types of debt you have. Generally speaking, debt consolidation loans are a good option if you have multiple types of debt to consolidate. This is based on the fact that debt consolidation loans give you a lump sum upfront, which you can use to pay off medical bills, credit card bills, payday loans and any other debts you have.

By contrast, balance transfer credit cards can be a better option if you have only credit card debt. This is based on the fact that many balance transfer credit cards only let you consolidate other credit card balances. Balance transfer credit cards can also be a good option for paying down small amounts of high-interest credit card debt due to their relatively short introductory periods.

Why it’s important: Your credit mix factors into your credit score. Having different types of debt can improve your credit score.

Should I get a personal loan or a balance transfer credit card?

If you have high-interest debt you desperately need to pay off, you could make a case for a debt consolidation loan or a balance transfer credit card. However, both options tend to work best for different situations and for different types of consumers.

Debt consolidation loans tend to work best for:

  • People who need to pay down debts over a long period of time, or up to 10 years.
  • Anyone who wants the security of a fixed interest rate and fixed monthly payment.
  • People who need to stop using credit cards due to the temptation of overspending.

Balance transfer credit cards tend to work best for:

  • Anyone who has a small amount of debt that they can completely pay off during their card’s 0 percent APR introductory period, which will likely last 12 to 20 months.
  • People who have the discipline to stop using credit cards even after signing up for a new one.

The bottom line

Either debt consolidation option can work for your needs and goals, but you need to have a plan to get out of debt either way. No matter which option you go with—a debt consolidation loan or a balance transfer credit card—learning to live on less will be the key to your success.

Changing Rates Icon showing rates changing over time.

Find a personal loan that's right for you.

Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Associate Editor
up next
Part of  Introduction to Balance Transfer Credit Cards