Balance Transfer Card or Personal Loan: Which Is Right for You?

Balance transfer credit cards and debt consolidation loans are two common consolidation tools that can lower the amount of interest you owe and help you pay off debt faster and more simply.

But how do you choose between a balance transfer card and a personal loan for debt consolidation? It depends on factors like the type and amount of debt you have and which financial product you qualify for.

How to choose between a balance transfer card and a personal loan

Ask yourself these four questions to determine how to pay off your debts.

1. What type of debt do you have?

The type of debt you have may help you determine which product is the best fit.

For example, a balance transfer card works by letting you move high-interest credit card debt to the new credit card, but you can’t always transfer other types of debt.

A debt consolidation loan has more flexibility. You can use it to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans and existing personal loans.

2. How long will it take to pay off your debt?

How much money you owe — and how long it will take to pay it off — is another important consideration.

A balance transfer card may have a lower credit limit than a loan, so it’s best for smaller debts. These cards also have promotional APRs of 0% for a limited period of time, usually from 15 to 21 months. You’ll want to make sure you can pay off your debt within that initial period when you'll be charged no interest.

» MORE: Best balance transfer credit cards

A debt consolidation loan has a longer repayment period, usually from one to seven years, and many lenders offer high loan amounts, sometimes $50,000 or higher. Though you won’t save as much money on interest, a debt consolidation loan is usually a better fit for people with higher debt who need more time to pay it off.

» MORE: Best debt consolidation loans

3. Which product can you qualify for?

Balance transfer cards and debt consolidation loans have different qualification criteria, though both look at your overall credit, so check your credit score before applying.

Borrowers with good to excellent credit (690 score or higher) may qualify for both a balance transfer card and a debt consolidation loan.

If you have fair or bad credit (689 score or lower), you may only be able to qualify for a loan. Consolidation loans are available to borrowers across the credit spectrum.

» COMPARE: Best debt consolidation loans for bad credit

Depending on the lender, you may be able to pre-qualify for a personal loan, which means you can check potential loan terms without hurting your credit score.

4. What are the costs?

Finally, compare the costs of consolidating with each product. Though balance transfer cards come with a promotional 0% APR period, many charge a balance transfer fee, which is typically 3% to 5% of the total amount transferred.

Debt consolidation loans charge 6% to 36% APR, depending on your credit profile, debt-to-income ratio, desired loan amount and repayment term. Some lenders charge an origination fee that covers the cost of processing your loan. This is an upfront fee that ranges from 1% to 10% of the loan amount.

Keep in mind that even with these fees, a balance transfer card or debt consolidation loan may have a lower APR than your current debts, so you can still save money.

Should you get a balance transfer card or a personal loan?

In summary, a balance transfer card is best for consolidating high-interest credit card debt that can be paid off in under two years. A debt consolidation loan is best for consolidating large amounts and multiple types of debt.

Balance transfer cards vs. personal loans

Tips to consolidate your debt successfully

Consolidating can be an effective way to get a handle on your debt. But it won’t address spending habits that led to getting a balance transfer card or debt consolidation loan.

Establishing a realistic budget can help you keep spending in line; the budget should include debt payments as well as money for things you need and want to buy.

If you’ve been racking up debt to pay for basic necessities like food or utilities, local charities that provide assistance with groceries, rent, household bills and transportation may be better alternatives to borrowing.