Balance Transfer or Personal Loan: What Works Best for Lowering Your Debt?

Written By
I. Mitic
July 09,2023

If you’re like most people, you have a few credit cards that are maxed out. The interest rates on those cards are sky high, and the minimum payments are barely making a dent in the balance. You may be wondering if you should use a balance transfer or a personal loan to consolidate your debts. In this blog post, we will compare the two options and help you decide which is best for you.

The Main Differences Between Balance Transfers and Personal Loans

There are two main options for debt consolidation: balance transfers and personal loans. Both have their pros and cons, but which one is right for you will depend on your individual circumstances.

Balance transfers involve transferring the balance of your credit card (or multiple cards) to a new card with a lower interest rate. This can help you save money on interest and pay off your debt faster. However, balance transfers usually come with a fee, and if you’re not careful, you could end up paying more in interest than you would have with a personal loan.

Personal loans, on the other hand, involve borrowing a fixed amount of money from a lender and repaying it over a set period of time, usually at a lower interest rate than your credit card. 

Personal loans can also be used to consolidate multiple debts into one monthly payment, which can make it easier to manage your finances. However, personal loans typically have higher interest rates than balance transfers, so you’ll need to be sure you can afford the monthly payments before you take one out.

Factors to Consider When Consolidating Your Debt With a Balance Transfer or a Personal Loan

When deciding whether a personal loan or a balance transfer is right for your credit card debt repayment, there are a few factors you’ll need to consider.

Interest Rates

The first and probably the most important factor is the interest rate. Good balance transfer credit cards offer an interest-free period, typically around 12 to 18 months, during which you’ll only have to pay the annual fee (if there is one) and nothing else. After that, the interest rate will revert to the standard purchase rate, which is usually around 20%.

Personal loans have a fixed interest rate for the life of the loan, which means you’ll know exactly how much your repayments will be each month. The interest rate on personal loans is usually lower than the standard purchase rate on a credit card. The average personal loan interest rate in 2024 is expected to be around 11.05%.


The other factor you need to consider when weighing between a balance transfer vs. a personal loan is fees. Balance transfer credit cards often have a balance transfer fee, which is usually around 3-5% of the amount you’re transferring. Personal loans also have fees, which can include an application fee, origination fee and late payment fee. You’ll need to compare the fees to see which option is cheaper.

Credit Score Impact

Another factor to consider is the impact on your credit score. A personal loan will show up as an installment loan on your credit report, which is fine if you don’t have any other installment loans. 

However, if you already have a lot of debt, taking out another loan can increase your debt-to-income ratio, which can hurt your credit score. A balance transfer, on the other hand, doesn’t require you to take out another loan, so it won’t impact your debt-to-income ratio.

Credit Score Requirements

Balance transfer credit cards usually require a good or excellent credit score and are a good choice for those who have a score of 670 or above

If you have a low credit score, you may still be able to qualify for some cards, but those will not have an introductory 0% APR period and will require you to put down a cash deposit as collateral.

Using a personal loan for debt consolidation usually also requires a good or excellent credit score, but there are some lenders that will offer loans to those with a minimum score of 640 or above. If you have a bad credit score, you may still be able to get a loan, but the interest rate will be higher, and the terms will be less favorable.

Repayment Period

One more factor to consider is the repayment period. Balance transfer credit cards typically have a shorter repayment period than personal loans, so you’ll need to make sure you can pay off your debt before the interest-free period ends. Personal loans usually have a repayment period of two to five years, which gives you more time to pay off your debt.

Types of Debt

Finally, you’ll need to consider the types of debt you have. If you have high-interest debt, such as credit card debt with an interest rate over 20%, a balance transfer card can help you save money on interest. On the other hand, using a personal loan instead of a balance transfer is a preferred option when you want to consolidate multiple types of debt, such as student loan debt, medical debt, and payday loans into one monthly payment.

  Balance Transfer Personal Loan
Fees Initial balance transfer fee of either 0%, 3%, or 5% Many personal loans charge an origination fee of up to 8%
Credit Score Requirements 670+ 640+
Repayment Period Paying in full before the introductory period is over Make fixed payments each month for the entire duration of the loan
Best For Repaying credit card debt For consolidating multiple loans into one monthly payment

Which Is the Better Choice: a Personal Loan or a Balance Transfer Credit Card?

As we explained above, both personal loans and balance transfer credit cards can be used to consolidate high-interest debt, but they work best in different situations.

A balance transfer credit card is a better choice when:

  • You have good credit and can qualify for a card with a 0% introductory APR period.
  • You want the flexibility to pay off your debt over time or make occasional purchases on the same card.
  • You’re comfortable using credit cards and understand how to avoid paying interest charges.

A personal loan is a better choice when:

  • You have average or bad credit and can’t qualify for a 0% APR balance transfer card.
  • You want the peace of mind of fixed monthly payments and knowing exactly when you’ll be debt-free.
  • You want to consolidate multiple debts and repay them over a longer period.

Other Options to Consider

If you’re not sure which type of debt consolidation loan is right for you, you can consider speaking with a nonprofit credit counseling agency. A certified credit counselor can help you review your finances and make a debt management plan that fits your unique situation. You can also refinance debt with the same type of loan, such as using a private student loan to refinance your federal student loans. 

And last but not least, you can try and negotiate a lower interest rate with your current creditors. Although this option isn’t available to everyone, it’s worth a shot if you have good credit and a strong history with the creditor.

In Conclusion

There’s no one-size-fits-all answer to the question, “Should I use a balance transfer or personal loan to consolidate my credit card debt?” The right choice depends on your individual situation and financial goals.

If you have good credit and can qualify for a 0% APR balance transfer credit card, a balance transfer may be the best option for you. If you have average or bad credit, a personal loan may be better.

And remember, there are other options to consider as well, such as credit counseling and refinancing debt. Whatever you do, make sure you understand the terms of your consolidation loan before you sign on the dotted line.


Can I transfer my credit card balance to a personal loan?


Yes, you can. But keep in mind that personal loans typically have higher interest rates than balance transfer cards. So it may not make sense to transfer a balance from a low-interest card to a high-interest personal loan.

Do balance transfers hurt credit score?


Unlike a personal loan, a balance transfer won’t directly impact your credit score. But if you open a new credit card account in the process, that could temporarily lower your score. Also, if you transfer a balance from one card to another, carrying a high balance on the new card could hurt your score.

Can I consolidate my debt with a home equity loan?


Yes, you can use a home equity loan for debt consolidation purposes. But this option comes with some risks. If you can’t make the payments on your home equity loan, you could lose your house. So it’s important to make sure you can afford the monthly payments before you take out a home equity loan.

What credit score is needed for balance transfer cards?


The minimum credit score for balance transfer cards varies from card to card. But in general, you’ll need good or excellent credit to qualify for a balance transfer card with a 0% APR period. So if your credit score is below 670, you may not be eligible for the best balance transfer deals.

What is one disadvantage of going through with a balance transfer instead of a personal loan?


One downside of balance transfers is that they can take a few weeks to process. So if you are thinking about using a personal loan or balance transfer and need debt relief urgently, a balance transfer may not be the best option for you.

About author

For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.

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