Kudos has partnered with CardRatings and Red Ventures for our coverage of credit card products. Kudos, CardRatings, and Red Ventures may receive a commission from card issuers. Kudos may receive commission from card issuers. Some of the card offers that appear on Kudos are from advertisers and may impact how and where card products appear on the site. Kudos tries to include as many card companies and offers as we are aware of, including offers from issuers that don't pay us, but we may not cover all card companies or all available card offers. You don't have to use our links, but we're grateful when you do!
Balance Transfer vs. Personal Loan – Choosing the Best Way to Pay Off Credit Card Debt
December 12, 2024
.webp)
If high-interest credit card debt is weighing you down, you’re likely exploring options to eliminate it faster and cheaper. Two popular debt-busting strategies are 0% balance transfer credit cards and debt consolidation personal loans. Both can help you save money on interest and simplify payments, but which one is right for you? In this guide, we’ll break down the balance transfer vs. personal loan decision. We’ll explain how each method works, compare their pros and cons, and outline key factors (like your debt amount, credit score, and discipline) to consider. By the end, you’ll have a clear sense of which approach fits your situation best – or whether a combination might even be an option. Let’s get you on the path to paying off that credit card debt in the smartest way possible!
Understanding the Options: Balance Transfers and Personal Loans
Balance Transfer Credit Card: This involves moving your existing credit card debt onto a new credit card that offers a 0% APR introductory period on balance transfers. Many cards offer 0% interest for a promotional period (typically 12–18 months). During that time, you pay no interest on the transferred balance, which can save you a ton in interest charges as you pay down the debt aggressively. However, there’s often a balance transfer fee of around 3–5% of the amount. After the promo period, any remaining balance will start accruing interest at the card’s regular APR (which could be high).
Key points:
- You generally need a good credit score to qualify for the best 0% balance transfer offers. If your credit is poor, it might be hard to get approved for a new card, especially one with a large enough credit limit for your needs.
- It’s great for short-term payoff. Essentially interest-free financing for a year or more.
- You must be disciplined to pay off (or significantly down) the balance within the 0% period. Otherwise, once the regular APR hits (often 18-25%), you could be back in the high-interest trap.
- Typically can’t transfer between cards of the same bank (e.g., you can’t transfer Chase to Chase).
- Some cards offer no balance transfer fee promos (rare, but they exist), which is ideal. Most charge 3-5% though.
Personal Loan (Debt Consolidation Loan): This means taking out a new loan (usually unsecured) from a bank, credit union, or online lender and using that money to pay off your credit card balances. Then you repay the loan in fixed installments over a set term (often 2–5 years). The goal is to get a lower interest rate on the personal loan than what your credit cards charge. Personal loans for good credit can have APRs in the single digits or low teens, which is much lower than typical credit card APR (~22%). For fair credit, loan APRs might be higher, but still possibly better than a maxed-out card’s rate.
Key points:
- Fixed interest rate (usually) and fixed monthly payment, which can provide a clear payoff timeline (e.g., “$300 a month for 36 months and it’s done”).
- No teaser 0% period, but also no spike in rate later – you know your rate from the start (e.g., 9% APR for 3 years).
- There might be an origination fee (1-5% typically) that gets deducted from the loan amount, though some lenders have no fees.
- Easier to manage one loan vs multiple cards. Also, once cards are paid off, you have 0 balance on them (important: resist reusing them!).
- You need to qualify for the loan – which depends on your credit score, debt-to-income ratio, etc. Some lenders cater to people with fair credit too, but at higher rates.
Comparing Pros and Cons
Cost (Interest and Fees):
- Balance Transfer: Potentially the cheapest if you can pay it off within the 0% window. Essentially, you could pay zero interest. Just the one-time 3-5% fee, which might be far less than what interest would have been. Example: $10,000 debt, 5% fee = $500, then 0% for 18 months. If you pay $10k off in 18 months, $500 is all it cost. By contrast, that $10k at 20% APR would accrue around $1,800 in interest in 18 months if you just paid minimums. Huge saving. However, if you fail to pay it off, the remaining might incur interest at, say, 20% after the period, which can get costly.
- Personal Loan: You will pay interest from day one, but at a possibly lower rate than the credit cards. No big spike to worry about later. For example, a $10,000 debt at 10% APR on a 3-year loan will incur about $1,616 in interest over those 3 years. That’s more than the $500 in the BT scenario (if paid in 18 months), but if you couldn’t pay in 18 months, the BT interest might catch up. Also, no surprise fees later typically, aside from maybe an origination fee (say 4% = $400, often rolled into the loan or taken off upfront).
Monthly Payments and Flexibility:
- Balance Transfer: During the 0% period, you must still make minimum payments (usually ~2% of balance). To pay off in time, you need to self-impose a payment plan. It’s flexible in that you could pay more one month, less another (as long as minimum is met), no fixed required amount for payoff. But that flexibility can be a double-edged sword: if you’re not disciplined, you might pay too little and then get hit with interest later.
- Personal Loan: You have a fixed required payment every month that includes principal + interest to pay off in the term. Less flexibility (you can pay extra without penalty in most cases, but not less). This forced structure can be helpful if you need rigidity to ensure you become debt-free by a certain date.
Ease of Approval:
- Balance Transfer: Requires opening a new credit card. If your credit score is, say, 700+, you’ll have a good shot at a top BT card. If your score is lower (e.g. 640-680), you might either not get approved or get a lower credit line that may not accommodate all your debt. There’s also a risk you open a card, but the limit is not enough to transfer your full balance – you could transfer part of it though.
- Personal Loan: Many lenders have options for various credit levels. If you have good credit, you’ll get the best rates; if fair, you might get a loan but at a higher rate than you’d like (maybe 15-20%). There are also secured loan options (like using a car or savings as collateral) if unsecured doesn’t approve, but that’s another scenario. Loans consider your income and other factors too.
Impact on Credit Score:
- Balance Transfer: Opening a new card causes a hard inquiry (small ding) and adds to your available credit (which could help utilization if cards were near max and now you transfer to a new card). But if you close old cards after paying them off, that could reduce your available credit and potentially hurt your score. Ideally, you keep them open (with zero balance) to have a good credit utilization ratio, but then you must have willpower not to reuse them. In the short term, transferring debt doesn’t erase it, so your credit utilization is still high just on a different card. But 0% might allow faster payoff which improves score over time.
- Personal Loan: Also involves a hard inquiry and a new credit account. Initially, your score might dip a bit. However, paying off credit card balances with the loan will drastically reduce credit utilization on those cards, which often gives a nice boost to your credit score (cards go from high balances to zero). You’ll have an installment loan now, which is a different type of credit, potentially a plus for credit mix. As long as you make on-time payments, a personal loan can be good for your credit, and having lower card balances is definitely good. Overall, either option can help credit if executed properly (the worst case for credit would be doing one of these and then running cards back up – ending with both card debt and loan debt).
Behavioral Considerations:
- If you choose a balance transfer, you need to be confident you won’t run up new charges on the now freed-up old credit card. One common pitfall is people transfer $5k to 0%, then see the old card at $0 and start using it again – ending up with double the debt. You must commit to not using those paid-off cards (or even consider closing or freezing them if temptation is too high). Also, you should aim to divide the transferred balance by (promo months) and pay roughly that amount monthly to be on track.
- With a personal loan, the threat is slightly different: you pay off cards with the loan, cards are at $0. You must not rack up new balances on them, or you’ll have loan + new card debt. This is a behavioral discipline issue as well. Some people actually do a loan and then cut up their credit cards or put them away until the loan is done. If overspending caused the debt, you must address that habit regardless of method.
When a Balance Transfer Makes Sense
- You have a plan to pay off the debt within 12-18 months. You’re confident your cash flow allows you to divide the balance and conquer it during the 0% period.
- Your credit score qualifies you for a good 0% card (typically 670+ FICO, ideally 700+ for larger limits).
- Your debt amount isn’t astronomical. Most balance transfer cards have credit limits that might range from a few thousand up to maybe $15k or $20k for well-qualified individuals. If you have $30k debt, you might not get a single card with that limit; you could do multiple transfers but that gets tricky. For smaller debts (a few thousand), BT card is a quick win.
- You’re organized and disciplined. You can manage another credit card, track the promo expiration, and stick to a payment schedule without being forced by a lender.
- You want to avoid interest entirely. If done right, a balance transfer can mean paying 0 interest, just a one-time fee. That appeals to those who hate the idea of any interest paid to banks.
When a Personal Loan Makes Sense
- You need a longer time to repay – say 2 to 5 years – because the debt is larger or your budget is tighter. A personal loan gives you a structured multi-year payoff at a reasonably low rate.
- Your credit is decent but perhaps not top-tier – you might not get a 0% card or enough limit, but you might get a loan at, say, 10-15% APR. If your credit is excellent, you could also get a loan at 6-8% which is cheap.
- You prefer fixed payments and a clear end date. The loan is straightforward: e.g., “I have a $10k loan at 9% for 36 months, I’ll pay $318 a month and be debt-free in 3 years.” Some people find this more reassuring than the open-ended credit card scenario.
- You want to consolidate multiple debts into one. You can use one loan to pay off multiple cards at once, simplifying things.
- Your spending habits are under control or you’ve closed accounts. Once consolidated, you won’t rack up new debt.
Can You Do Both?
Sometimes a combination approach works. For example: transfer as much as you can to a 0% card, and for any remaining debt that doesn’t fit, get a small personal loan. Or vice versa – take a loan for most, but if you also get a small 0% offer, maybe use that too. However, juggling both means multiple new accounts and careful planning. Most people pick one primary strategy.
Quick Scenario Comparison:
Let’s illustrate with a scenario – $10,000 credit card debt at 20% APR. You can afford about $500 a month to pay it down.
- Option A: Balance Transfer Card – 0% APR for 18 months, 3% fee. You transfer $10k, pay $300 fee upfront (3%). Now you owe $10,300 at 0%. To pay that in 18 months, you’d need to pay about $572 a month. If you can up your payment to that, you’re done in 18 months, total cost $300 in fees, $0 interest. If you stick to $500/month, after 18 months you’d have about $1,100 left. That remaining starts accruing interest – maybe it takes you 2-3 more months to finish at the new APR, costing maybe $30-50 in interest for those months. So total cost maybe $350. Debt free in ~20 months.
- Option B: Personal Loan – 3-year loan at, say, 9% APR (just an estimate for a good credit). Payment ~$318/month. If you pay $500, you’ll actually pay it off early (in ~22 months) because you’re overpaying. Total interest for 22 months on 9% ~ $800 or so (less than if you dragged 36 months). If you just pay the required $318, you’ll finish in 36 months with about $1,480 interest. Debt free in 22-36 months depending on payment.
So if you can manage the larger payments, the balance transfer is cheaper and faster. If you need the smaller required payment, the loan provides that but you pay more interest overall.
It really comes down to your personal financial situation:
- If you have the ability to aggressively attack the debt and just need a temporary interest-free break to do it, a balance transfer is ideal.
- If you need a structured payoff and possibly a longer term, a personal loan is safer.
Also consider emotional/behavioral factors: Some people feel that paying off a loan is an accomplishment and they won’t go back into card debt, whereas juggling another card might tempt them. Others feel a loan is just shifting debt around and prefer to use the tools within the credit card realm to tackle it.
FAQs: Balance Transfer vs Personal Loan
Is it better to do a balance transfer or get a personal loan to pay off credit cards?
It depends on your payoff timeline and financial discipline. A balance transfer credit card is better if you can pay off the debt fairly quickly (within the 0% intro period) and you have good credit to qualify. It offers interest-free repayment for a time, making it the cheapest option if used properly (just a small transfer fee). On the other hand, a personal loan is better if you need a longer period to pay (several years), or if your credit card interest rates are very high and you can secure a significantly lower fixed rate on a loan. The personal loan gives a structured plan with fixed payments, which some people find easier to stick to. In short: go with a 0% balance transfer for short-term, intense debt payoff, and choose a personal loan for a more gradual, long-term payoff with a lower rate than your cards. Either way, make sure you address the habits that led to the debt so you don’t end up back in the same spot.
What are the main risks of a balance transfer?
The main risks of a balance transfer are:
- Not paying it off before the 0% period ends: If you still have a balance when the intro APR expires, that remaining balance will start accruing interest at the regular (often high) APRrocketloans.com. This can undermine the benefit of the transfer. In some cases, if you’re not careful, you might even get charged deferred interest (though most 0% card offers nowadays are true 0%, not deferred interest like some retail store plans).
- Balance transfer fees: Typically 3-5% of the amountrocketloans.com – a fee that adds to your debt. It’s usually worth it compared to high interest, but it’s an upfront cost to be aware of.
- New purchases on the card: Many 0% balance transfer cards do not offer 0% on new purchases (or they do, but separate terms). If you put new charges on the card, those might accrue interest immediately or after a shorter period, and sometimes payments apply to promotional balance first, leaving new purchases accruing interest. It can get messy. Ideally, avoid using the BT card for new purchases until the transferred debt is paid.
- Temptation to spend again: After freeing up your old cards, the risk is feeling like you have available credit to use – which can lead to more debt. You must be disciplined to not run up balances again, or you end up worse off (now multiple cards with balances).
- Credit implications: Opening a new card can slightly ding your score with an inquiry and lowering your average account age. But this is usually minor and often offset by the positive of lower credit utilization if you paid off other cards. Overall, a balance transfer is very safe financially if you have a solid plan. The biggest “risk” is human nature – not following through with the payoff in time or accumulating new debt.
Will a debt consolidation loan hurt my credit?
In the short term, taking a new loan can cause a small dip in your credit score due to the hard inquiry and a new account being added. Your average account age may decrease, and your score might drop a few points. However, using a personal loan to consolidate credit card debt can actually help your credit score in the mid-to-long term, provided you make on-time payments.
Here’s why:
- Credit utilization goes down: Paying off credit card balances with the loan can dramatically reduce your revolving utilization ratio (the percentage of available credit you’re using on cards), which is a big factor in your score. Lower utilization = higher score, often markedly so.
- Installment vs Revolving: The personal loan is an installment loan, which doesn’t weigh into utilization the same way. Diversifying credit types (having both installment and revolving credit) can have a modest positive effect on your score.
- Payment history: If you consistently pay your loan on time each month, you build positive payment history. Over time, this boosts your score. The key is you must not rack up new credit card debt after consolidation – that would hurt your score and defeat the purpose. So initially a small ding, but within a few months you could see your score improve because your cards are paid off. Many people see an increase in credit score after consolidation because their credit card utilization drops from high to zero.
What happens if I can’t pay off a balance transfer before the 0% APR ends?
If you still have a balance when the 0% promotional period expires, the remaining balance will start accruing interest at the card’s regular APR, which could be anywhere from 15% to 25% or more, depending on the card and your credit. For example, if you have $1,000 left after the promo ends and the APR is 20%, that $1,000 will now generate interest charges ($17 monthly until it’s paid, assuming 20%). There’s no penalty or back-interest charged (credit card companies don’t usually charge retroactive interest on balance transfers; they just start charging the normal rate on the remaining balance going forward – always read the terms to be sure).
At that point, you have a few options:
- You could continue paying it off as fast as possible on that card, now incurring some interest.
- You might consider doing another balance transfer to a new card if you qualify (essentially moving it again to a new 0% offer) – though frequent balance hopping can have diminishing returns and impacts on credit.
- Some cards allow you to convert the leftover into a fixed payment plan (with a set interest or fee) via programs like Amex Plan It or Chase’s My Chase Plan, etc. Ideally, you avoid this by planning payments to zero the balance by the end of the promo. If it’s a small leftover amount, the interest won’t be too bad if you kill it off in a couple months. What you want to avoid is letting a large amount linger post-promo and then paying a lot of interest again. If you see you can’t pay it in time, you might ahead of time look for another promo or a loan to finish it. The key takeaway is: the 0% period is a deadline you should take seriously. Set a reminder a month or two before it ends to re-evaluate your payoff plan.
Can I use a personal loan to pay off a balance transfer card?
Yes, you can. If, for instance, you did a balance transfer and later decide a personal loan would be better (or you can’t clear the balance in time), you can certainly take out a personal loan and use those funds to pay off the credit card. There’s no restriction against that. Essentially, you’d be consolidating the credit card debt into the loan at that point. Many people do a combination of methods over time as needed. However, keep in mind each time you open new credit (card or loan), it can affect your credit score with inquiries and new accounts. Also, make sure it makes financial sense: if your balance transfer is about to end 0% and jump to 20% APR and you can get a loan at, say, 8%, then by all means that could save interest. If you only have a small balance left, it might be simpler to just pay it off in a couple months of interest and avoid opening a new loan. It’s all about comparing the costs. Using a loan to pay off a card is common – effectively that’s what a consolidation loan does. Just be cautious not to over-borrow; only take what you need to clear the cards and commit (again) to not running up the cards afterward. Also note, some lenders can directly pay your creditors (credit cards) on your behalf when you get a loan, or you can just receive the funds and then pay the card yourself – both achieve the same end result of card debt paid.
Supercharge Your Credit Cards
Experience smarter spending with Kudos and unlock more from your credit cards. Earn $20.00 when you sign up for Kudos with "GET20" and make an eligible Kudos Boost purchase.
Editorial Disclosure: Opinions expressed here are those of Kudos alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.
