Balance Transfer Credit Card Vs. Personal Loan: How Do You Choose?

8 Min Read
Updated Feb. 15, 2024
Written By
Patrick Russo
Young couple calculating bills on laptop.

Do you have debt mounting from multiple sources? Are you debating whether to apply for a balance transfer vs. personal loan? Both avenues can offer you some much needed relief from the stress and confusion of multiple debt payments, but your financial situation will ultimately determine your best option. Follow along to learn the difference between balance transfer and personal loans and decide which one is right for you.

The Differences Between A Balance Transfer And A Personal Loan

A personal loan gives you access to a lump sum that you can use to pay off multiple sources and types of high interest debt and consolidate them into one lower interest payment. Personal loans are typically unsecured with a fixed interest rate, meaning that you do not have to offer any of your assets as collateral to qualify for the loan, and you can be confident that your monthly payments will be consistent. The time you have to repay the loan depends on its terms, but it can be anywhere from 2 to 7 years.

With a balance transfer credit card, instead of a lump sum payment, you can transfer all of your outstanding debts into one revolving line of credit. If you have debt on multiple credit cards that can be stressful to keep track of, you can use a balance transfer credit card to put them all in one place.

The most enticing factor of a balance transfer credit card is the interest-free period at the beginning of the loan term. Depending on the loan terms, you could have 0% APR for 6 to 21 months after opening the card, allowing you to make payments directly to the principal without the hassle of interest payments. However, after this initial period, you may have to pay a higher interest rate than you would with a personal loan or even your previous credit cards.

See What You Qualify For

Understanding Personal Loans For Debt Consolidation

Now that you know the difference between balance transfers and personal loans, it’s helpful to know how to apply for a personal loan. Once you review your financial situation and research the type of loan you need, remember that you can shop around and get prequalified. Possible lenders include banks, non-banking financial institutions (NBFIs), credit unions or online lenders. After you pick the lender that’s right for you, you can provide them with the necessary documents for them to review your financial history. If you’re approved, you can close on the loan.


Here are some of the main benefits of a personal loan once you’re approved:

  • Simplifying your finances. Keeping track of multiple sources of debt from different lenders can be stressful and confusing. A personal loan can consolidate all your debt into one easy-to-understand payment.
  • Reducing your monthly payment. You can reduce your payments if your personal loan interest rate is less than the high-interest debt you’re consolidating. Spreading the payments over a longer time can also lower your monthly payment.
  • Improving your credit score. Letting your debt spiral to a point where you start missing payments can drastically harm your credit score. By consolidating your debt into one payment, you can consistently make one payment and improve your credit score.
  • Having a clear timeline. Personal loans with fixed rates have clear pay schedules that allow you to plan your finances well in advance.


Some of the downsides include:

  • Possibly paying more in interest. Extending the timeline on your debt may require you to pay more interest overall through the life of your loan.
  • The temptation to take on more debt. If you use a personal loan to consolidate credit card debt, seeing a fresh, zero balance on your cards may tempt you to start spending on those cards again. It’s essential to use personal loans as a means to end your struggles with debt, not a method to prolong them.
  • Fees and penalties. Personal loans come with origination fees ranging from 1% to 8% of the loan amount. The lender may also charge you a prepayment fee if you repay the loan early.
  • Higher monthly payments. If you were only making minimum payments on your credit card, you might pay more per month for a personal loan. However, by paying toward the interest and principal on your loan, you’re on track to pay off your loan.

Understanding Balance Transfer Cards For Debt Consolidation

The key to using a balance transfer card wisely is to take advantage of the 0% APR promotional period that many lenders offer at the beginning of the term.


The upside of balance transfers are:

  • You can avoid paying any interest: If you can pay off your entire debt balance before the end of your 0% APR promotional period, you won’t have to make any interest payments.
  • You can streamline your finances. A balance transfer credit card can make it easier to keep track of your payments by putting all your debt under one account.
  • You can improve your credit score. Making consistent payments improves your credit score over time and makes it less likely that you harm your credit score by missing payments.


There are some challenges and expenses that come with balance transfers.

  • It can be challenging to qualify. Balance transfer credit cards typically require you to have a credit score of 670 or higher, making it hard for many people to qualify for them.
  • The promotional period will end. If you cannot pay off the balance of your debt before the 0% APR promotional period ends, you will have to start making interest payments that may be even higher than the ones on the debt you consolidated.
  • You may incur balance transfer fees. Lenders charge a balance transfer fee of 3% to 5% on the amount you transfer to the new card.
  • You’ll likely have a higher interest rate than with a personal loan. Once the promotional period is over, the interest rates on balance transfer credit cards are higher than personal loan interest rates.

Choosing Personal Loans Vs. Balance Transfer Cards

Before making a decision, ask yourself these questions:

  • What types of debts do I have? Balance transfer cards often only allow you to consolidate credit card debt. Personal loans will enable you to consolidate multiple types of debt, including credit cards, medical bills, car payments or any other debt you may have.
  • How much debt do I have? Balance transfer cards are best for a small debt you can realistically pay off during the 0% APR promotional period. Personal loans are better for a large debt you can repay over years instead of months.
  • What’s my credit score? Balance transfer cards often require a credit score of 670 or above. Personal loans are more accessible for people with lower credit scores.
  • What are the available interest rates? Comparing interest rates between your options is essential. Personal loans may have lower rates, but balance transfers offer you the opportunity to avoid interest payments altogether.

When Personal Loans Might Be Better

Personal loans might be the best option if you have multiple types of debt that will take several years to pay off. It also may be the better option if you have a credit score below 670.

For example, let’s say you’re in the middle of renovating your home when you slip and break your leg. With the addition of your medical bills to your home renovation costs, your debt balloons to a level that you need time to manage. With a personal loan, you can package your medical debt, home renovation debt, credit card or any other debt into one manageable payment that you can spread over the years.

When Balance Transfer Credit Cards Might Be Better

A balance transfer may be the best option if you have multiple credit cards with rising balances that are getting hard to manage. It’s best to address this situation before you ever miss a payment so your credit score remains in good standing.

Let’s say you have multiple credit cards with large balances that you can only pay the minimum payments on. If you qualify for a balance transfer credit card, you could pause interest payments for all your debt for a short time, allowing you to tackle the principal head-on. If you assess your finances and determine that you can pay off your entire debt balance during the 0% APR promotional period, this may be your best option for financial freedom.

When To Consider A Personal Loan AND A Balance Transfer Card

There are certain situations where both options can be helpful. For example, if you’re approaching the end of the promotional period on your balance transfer card but cannot pay off the balance, you may be able to use a personal loan to cover the remaining balance and avoid the high interest payments. Keep in mind a personal loan may come with closing costs, so be sure to weight the pros and cons to make sure it makes sense.

Balance Transfer Or Personal Loan FAQs

Below are some of the most common questions about balance transfers and personal loans.

Is it better to get a balance transfer or a loan?

The decision to get a personal loan vs. balance transfer depends on your unique financial situation. Personal loans may be better for larger debts you need to pay over the course of years, while balance transfers may be better for a smaller amount of credit card debt you can pay off in months without interest payments.

Do balance transfers hurt my credit?

Balance transfers can improve your credit score by decreasing your credit utilization and making your payments more manageable during the initial 0% interest period. While there can be temporary effects on your credit score from a hard inquiry into your credit history, this is the same effect that applying for any credit card would have.

Are balance transfers or personal loans better for rebuilding my credit?

Both balance transfer and personal loans can help you rebuild your credit. Ultimately, the option that is best for you depends on your personal financial situation.

The Bottom Line: Balance Transfers And Personal Loans Can Lift You Out Of Debt

Balance transfers and personal loans use different methods to achieve a similar goal: to put you on the path to financial freedom. Both options can be excellent avenues to get you out of debt if you do the research and determine which is best for you. Make sure to weigh the pros and cons of each option before deciding.


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