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Should I Get a Balance Transfer or Personal Loan?
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
When you’re looking to pay off high-interest credit card debt, doing a balance transfer to a 0% APR credit card or taking out a personal loan are two powerful strategies. Deciding which option is best for you will depend on how much debt you’re carrying, how long you need to pay it off and how good your credit score is.
Pros and cons of a balance transfer card
You can avoid interest charges entirely during a 0% intro APR period
The addition of a new revolving line of credit can improve your credit utilization ratio
You’ll need good to exceptional credit to qualify for a balance transfer card
The intro APR period will end after anywhere from 12 to 21 months
Many balance transfer cards charge a 3% to 5% balance transfer fee
Pros and cons of a personal loan for debt consolidation
A loan might be more accessible if your credit is less-than-stellar
You could improve utilization by moving debt off a revolving account
A fixed monthly payment and payoff date provide structure
Potentially a better option if you have a high amount of debt
You’ll be charged interest, unlike with a 0% intro APR credit card
Some lenders might charge an origination fee or a prepayment penalty
You might have to set up autopay in order to get the best rate
When is a balance transfer card best?
Doing a balance transfer to a credit card offering a 0% intro APR offer is best when you want to avoid interest charges entirely, are able to pay off your debt in full within the intro APR period and have a good to exceptional credit score (typically considered a 670–850 FICO Score). Doing the math first is key.
For example, let’s say you transfer $1,000 to a credit card with a 12-month 0% intro APR period and a 3% balance transfer fee. You’ll incur a $30 balance transfer fee and end up with a balance of $1,030 on your new card. It’ll take a monthly payment of approximately $85.83 to pay that off in 12 months.
But let’s consider the same situation if you have a $4,000 balance instead of a mere $1,000. The 3% balance transfer fee will cost you $120 in this scenario, resulting in a balance of $4,120 on your new card. Thus, it will take a monthly payment of approximately $343.33 to pay your balance off in 12 months.
How does a balance transfer card work?
When you do a balance transfer, you’re essentially moving existing debt to a new credit card — typically one with a 0% intro APR offer. Some card issuers allow you to move other types of debts (including personal and auto loan debt) via balance transfer, but in general a balance transfer is used to pay off one credit card with another. Any balance remaining after the intro APR expires will be subject to the ongoing interest rate you’re given when approved for the card.
One important rule to know is that you can’t transfer balances between cards from the same issuer. So, for example, you can’t move balances between two Discover cards, or between two Chase cards.
You can also do multiple balance transfers. For example, if you’re carrying debt on multiple credit cards and want to consolidate that into one balance with one monthly payment, you can do multiple transfers to your new balance transfer card, assuming you have a high enough credit limit on your balance transfer card.
However, you should be aware that most balance transfer cards charge a fee of 3% to 5% of the amount you’ve transferred — so when doing multiple transfers, you’ll incur a fee on each one. There are cards with no balance transfer fee, but they’re rare, and often require you to qualify for credit union membership.
Finally, it’s common for issuers to require you to transfer your balances within a certain window of time after opening your account, such as 30 or 60 days. Make sure you read the fine print so you know your deadline, and request your balance transfer as promptly as possible once approved for your new card.
How do I get a balance transfer card?
Before applying for a new balance transfer card, evaluate how long of a 0% intro APR you need, how high of a balance transfer fee you’re willing to pay and what issuer or issuers your current debt is with (again, you can’t transfer debt between cards from the same issuer).
Based on our research of cards available through LendingTree, as well as top cards offered by major issuers, here are some of our top picks for balance transfer cards offering generous intro APR periods:
Wells Fargo Reflect® Card
The Wells Fargo Reflect® Card offers one of the longest 0% intro APR period on balance transfers and purchases that we’ve found anywhere.
You’ll get a 0% intro APR up to 21 months from account opening on qualifying balance transfers, after which a 15.99% - 27.99% variable APR applies.
The balance transfer fee is reasonable at 3% for 120 days from account opening, then up to 5%; min: $5.
You’ll also get a 0% intro APR up to 21 months from account opening on purchases, after which a 15.99% - 27.99% variable APR applies.
Cardholders are initially granted intro APRs of 18 months, with the opportunity to earn an extension of up to three months with on-time minimum payments.
The card’s annual fee is $0.
Citi Simplicity® Card
The Citi Simplicity® Card offers a 0% intro APR on balance transfers that equals the Wells Fargo Reflect® Card. Cardholders with the Citi Simplicity® Card enjoy an intro APR of 0% for 21 months on balance transfers, after which a 16.99% - 26.99% (variable) APR applies.
A somewhat high balance transfer fee applies with this offer 5% of each balance transfer; $5 minimum.
The intro APR on purchases is merely 0% for 12 months on purchases. After, a 16.99% - 26.99% (variable) APR applies.
There’s a $0 annual fee to carry this card.
U.S. Bank Visa® Platinum Card
The 0% intro APRs offered by the U.S. Bank Visa® Platinum Card aren’t quite as long as the Wells Fargo Reflect® Card — but they are close. This card comes with lengthy intros on both balance transfers and purchases.
Cardholders get a 0% intro APR for 18 billing cycles on Balance Transfers, after which a 17.49% - 27.49% (variable) APR applies. The balance transfer fee is either 3% of the amount of each transfer or $5 minimum, whichever is greater.
There’s also a 0% intro APR for 18 billing cycles on Purchases; after, a 17.49% - 27.49% (variable) APR applies. The U.S. Bank Visa® Platinum Card‘s annual fee is $0.
When is a personal loan for debt consolidation best?
You could consider using a personal loan to pay off your credit card debt if you have a large amount of debt and don’t think you’ll qualify for a high enough credit limit to cover it, you need more time to pay off your debt than the average 12- to 21-months that a balance transfer card might offer or you’re not sure your credit score is good enough to qualify for a balance transfer card. While you will pay interest with a personal loan, the rate may be considerably lower than what you are currently paying on your debts. Just be aware that if your credit score’s not great, you might get approved for a personal loan — but it could have a high APR.
If you’re struggling to get out of debt and a poor or fair credit score is a barrier, it might be worth considering working with a nonprofit credit counselor. A credit counselor can help you evaluate your options, and depending on your situation, might act as an intermediary between you and your creditors to put you on a debt management plan. While a debt management plan will negatively impact your credit score and take a few years to complete, it can be a lifeline if you’re feeling buried in interest charges and your balances keep climbing.
How does a personal loan work?
When you take out a personal loan, you’ll get a set repayment period (often ranging from 12 to 60 months) and a fixed monthly payment. Unlike with a 0% intro APR credit card, there’s no interest-free period. However, you could still end up saving money compared with carrying debt on credit cards with high APRs.
Plus, a personal loan is considered an installment account rather than a revolving account like a credit card. Only revolving accounts factor into your credit utilization ratio, which is the second most important factor impacting your FICO Score. For this reason, paying off credit card debt with a personal loan might improve your credit score as you use the loan proceeds to zero out your card balances.
You can also use a personal loan to consolidate debt from multiple credit cards, simplifying your finances so you just have one payment to keep track of.
APRs on personal loans range from 6% to 36%, according to the credit bureau Experian.
Also note that unlike credit cards, where the interest rate and the APR are the same, they’re two distinct numbers in the context of personal loans — interest rate is part of what makes up your loan’s APR.
How do I get a personal loan?
Personal loans are issued by banks, credit unions and online lenders. You can use a free LendingTree account to comparison shop for the loan that’s right for you and potentially receive offers from up to five different lenders. If you want to comparison shop on your own, you can check with lenders to see if they’ll let you prequalify, which only uses a soft pull and won’t hurt your credit score. You’ll still have to deal with a hard pull if you actually apply — and potentially face a rejection even after prequalifying — but prequalification can help you get an idea of what your options may be.
Things to watch out for
Neither a balance transfer card nor a personal loan is without potential pitfalls. Here are a few things to be aware of as you choose which to apply for:
- You can lose your balance transfer card’s 0% intro APR if you pay late. Paying on time is the most important factor in keeping a good credit score. But when you pay late, you risk losing your 0% intro APR — and you might even get slapped with a high penalty APR. Paying at least the minimum due will prevent this.
- Just making the card’s minimum payment isn’t enough. Making the minimum payment is good because it keeps you current and avoids late payment penalties. However, it’s generally not going to be enough to pay off your card in full within the intro APR period. Take control, do the math and know how much you need to pay each month to zero out that balance before interest charges start accruing on the account.
- Your loan might involve an origination fee or prepayment penalty. Some lenders charge an origination fee when you take out a loan. This will often be added to your balance and rolled into your monthly payment amount. You could also face a prepayment penalty for paying off your loan early. Make sure to read the fine print before you sign.
- Don’t add more debt as you try to get out of debt. It can be tempting to start using your credit cards again once you zero out their balances with a personal loan or balance transfer card. The last thing you want to do is end up with more debt as you try to clean the slate.