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Updated: Mar 18, 2024

Balance Transfer Credit Card vs. Personal Loan for Debt Consolidation

Learn about the differences when using balance transfer credit cards and personal loans for the purpose of consolidating high-interest debt.
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Dealing with debt can be difficult. If you have multiple loans, it’s especially tough since you have to deal with multiple bills, and minimum payments, every month.

One thing that can help you reduce your monthly payments, the number of bills you receive and save you money is consolidating your debt. This turns your multiple debts into a single loan from one lender. You have one interest rate and one monthly payment to worry about.

If you want to consolidate your debts, there are two options available to you. One is to open a balance transfer credit card. The other is to use a personal loan.

Balance Transfer Credit Cards vs. Personal Loans

Balance transfer credit cards Personal loans
  • Unsecured
  • Possible 0% APR introductory periods on balance transfers
  • Regular interest rates are higher compared to personal loans
  • Balance transfer fees may apply
  • Ideal for repayment periods of 12 to 24 months
  • Unsecured or secured
  • Regular interest rates are lower compared to credit cards
  • Origination fees, application fees, and prepayment penalties may apply
  • Potential for very high borrowing limits
  • Ideal for repayment periods of 1 year to 5 years

What is Debt Consolidation?

Debt consolidation is when you use a new loan to pay off some or all of your existing loans. By doing this, you turn multiple loans into one.

If you want to consolidate your debt, these are the key steps:

  1. Gather up the information on all your loans. Look at the interest rates, minimum payments, and the amount left to pay on each of them.
  2. Ideally, find a loan at least as large as your total remaining balances. If you want to save money on interest, you’ll need a new loan with a lower rate than your existing loans. If you want to pay less each month, your new loan will need to have a lower payment than the sum of each existing loan’s minimum.
  3. Apply for the new loan and use the money to pay off the balances of your existing loans in full.

In most cases, you don’t need to look for special debt consolidation loans or services. You can just do it yourself. In fact, many debt consolidation services charge a fee, reducing any savings you might have realized by consolidating your debts in the first place.

The two best ways to consolidate your debts is to use a balance transfer credit card or a personal loan.

Balance Transfer Credit Cards

Balance transfer credit cards are just like any other credit card, but they may come with a specific perk for new sign-ups. You can use a balance transfer card to make purchases, earn rewards, and make other credit card transactions.

What sets a balance transfer credit card apart is that it will come with an introductory interest rate period related to transferring existing balances. Usually, interest-free periods can last from 12-24 months on some credit cards when you don't have to pay any interest on transferred balances

This can mean huge savings if you have a lot of credit card debt on your other cards.

Most credit cards charge more than 15% APR. If you have a $1,000 balance on a credit card that charges 18% interest and paid $25 per month towards the balance, you’d take more than 5 years to pay that debt in full. The $1,000 in debt would cost more than $1,500 once you added all of the interest charges.

Taking advantage of 1 or 2 years of no interest could shave years off your payment time.

What to watch for

There are two downsides to using a balance transfer credit card.

One is that there is usually a fee to transfer an existing balance to your new credit card. This fee can be as much as 3-5% of the transferred balance. This can eat into your savings.

The second downside is that once the promotional period expires, you’ll go back to pay credit card interest rates again. If you can’t pay the balance in full before the promotional period ends, it might be a better choice to choose a loan with a steady, low interest rate instead.

Transferring balances

If you do decide to use a balance transfer credit card, look for the card that offers the longest promotional period and the lowest transfer fee.

Once you receive your new card, place a call to the customer service line on the back of the card. Explain that you want to transfer an existing balance to your new card. They’ll tell you what information they need to get the process started. Generally, you’ll want your existing credit card account numbers, issuer, and the like. Having a statement or two on hand will be helpful since they contain this info.

Once the balance is transferred, start paying it down as aggressively as you can. You’ll save the most by paying it before the zero-percent interest period expires.

Personal Loans

Personal loans are another option for consolidating your debt.

A personal loan is a type of loan that doesn’t have to be used for a specific purpose like a mortgage or car loan. The money is simply deposited into your bank account and you are free to use it as you wish. In this scenario, once the money arrives in your account, you should use it to pay off your existing debts. That leaves you with just the personal loan and no other debts to deal with.

There are two types of personal loans, secured and unsecured. Secured loans have lower rates and are easier to qualify for. The downside is they require collateral, such as money in a CD or an asset like your card. If you have a good credit score or can’t provide collateral, go for an unsecured loan.

Personal loans charge a much lower interest rate than credit cards, but a higher rate than something like a mortgage or car loan. By turning your expensive credit card debt into less expensive personal loan debt, you can save money and lower your monthly payments.

Curious how much a personal loan might end up costing you? Use our personal loan calculator to give you an idea of your possible monthly payments and accrued interest:

What to watch for

The main costs of personal loans, beyond the interest charges, are the fees involved. Some lenders charge an application fee when you apply for a loan. Some lenders also charge an origination fee. Origination fees are generally 2-6% of the loan’s balance. So, if you’re consolidating $10,000 in debt, you could wind up with $10,500 in personal loan debt if you pay a 5% origination fee.

Lenders might also charge early repayment fees. If you pay your loan ahead of schedule, you’ll pay a fee to make up for the lender’s lost interest earnings.

Personal Loans Fees

Lender Name Origination Fees
Santander Bank None
Upstart 2.8% - 8.0%
Lending Club 1.0% - 6.0%
Discover Bank None
Avant 1.50% - 4.75%
Citibank None
SoFi None
Wells Fargo None
TD Bank None
Marcus None
Citizens Bank None
M&T Bank None
Prosper 1.0% - 5.0%
American Express None
One Main Financial Varies by state
RocketLoans 1.0% - 6.0%
PNC Bank None
Best Egg 0.99% - 5.99%
Earnest None

It is possible to find a lender who doesn’t charge these fees, so look for no-fee options if you can.

Which One is Better for Debt Consolidation?

Whether you should use a balance transfer card or a personal loan for debt consolidation depends on your situation.

When balance transfer credit cards are better

Balance transfer cards are the best choice for someone who can qualify for the card and who can pay off the balance before the promotion period expires. If you don’t manage to pay the balance in full before the interest rate increases to the usual credit card rate, you lose out on a lot of savings.

Balance transfer credit cards also offer far lower limits than personal loans do. You can find lenders willing to offer personal loans of $50,000 or more. Most credit card lenders won’t give you a credit limit that high.
Also, consider that it can be difficult to transfer non-credit card debts to balance transfer credit cards. If you have different types of debt that you want to consolidate, a personal loan will make it easier.

When personal loans are better

Personal loans are the best choice to consolidate debt if you don’t expect to be able to pay your balances off in less than two years. Personal loans don’t offer zero-percent interest periods, but they do offer much lower rates than credit cards charge. Plus, the can get a fixed-rate personal loan so you know that your rate will never increase. Credit cards usually have variable interest rates. If rates in the market increase, so will the rate your credit card charges.

Another benefit is that you can get a personal loan with a seven-year repayment term, letting you stretch your payments over a long period of time. That also means you’ll have a low monthly payment, which can help if you are having cash flow problems in your monthly budget.

Finally, personal loans are the best choice for people with large existing debts. Most credit cards won’t extend a large limit to people with existing debts. Personal lenders, however, understand that people commonly use their loans to consolidate debts and will be willing to offer large loans for that purpose.


Consolidating your debts is a good first step towards becoming debt free. It can help you turn multiple monthly bills into one, low, monthly payment.

By turning your existing debts into one payment with a lower interest rate, you can save thousands of dollars.