The Balance Transfer Card or the Personal loan: Which One Is the Best for You?

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The Balance Transfer Card or the Personal Loan: What is the Best for You?
Find two options to consolidate the burden of debt: cash-back credit card as well as an individual loan.


Updated on January 31st 2023.

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Credit cards for balance transfer and are two of the most popular consolidation strategies that can reduce your interest you pay and assist you in paying off debt faster and more easily.
However, how do you decide between a balance transfer credit card or a personal loan? Answer these questions to find out the best way to pay off your obligations.
What is the best way to decide between the balance transfer card and a personal loan

If you are deciding between the balance transfer credit card and a personal loan to consolidate debt, there are four main questions you need to think about.
1. What type of debt do you have?
The kind of debt you have may aid you in determining which loan is most suitable for your needs.
For instance, it works by letting you move high-interest credit card debt onto the new credit card, but you're not able to transfer other types of debt.
A offers more flexibility. It can be used to pay off multiple types of debts that are not secured, such as medical bills, credit cards, payday loans and existing personal loans.
2. How much debt do you owe?
The amount of money that you have to pay -- as well as how long it will take to pay it offis an additional important factor to take into consideration.
Balance transfer cards may have a lower credit limit than a loan which is why it's a good choice to deal with smaller debts. A balance transfer card is available with a promotional APR of 0 percent for a specific time frame, typically from 15 to 21 months. You'll want to make sure that you pay off your debt within that initial period when you'll be charged no charges for interest.
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The debt consolidation loan has more time to pay back, usually from one to seven years, and many lenders offer high loan amounts, sometimes as high as up to $50,000. Though you won't save as much money on interest, a consolidation loan is usually more suitable for those with greater debts who require longer time to pay it off.
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Nerdy Tip
If you're not sure the amount of debt you've got, you can enter your current balances, interest rates and the monthly installments to see the whole picture.


3. What product are you eligible for?
The balance transfer card and the debt consolidation loans are different in terms of eligibility criteria however both consider your credit score overall, therefore before applying.
The borrower with excellent or good credit (690 credit score or higher) could be eligible for the balance transfer credit card as well as the debt consolidation loan. If you have poor or fair credit (689 credit score or less) it is possible that you will only be eligible for a loan. Consolidation loans are accessible to all borrowers on the spectrum of credit.
>> COMPARE:
Based on the lender, you might be able pre-qualify for the loan, which means you can review potential loan conditions without harming your credit score.
Are you looking to consolidate your debt? See if you pre-qualify for a debt consolidation loan.
Simply answer a few questions and you'll receive personalized results from our lending partners.


The amount of the loan
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4. What are the prices?
Finally, compare the costs of consolidating with each product. Although balance transfer cards come with a promotional 0% APR period, many charge fees for transfer of balances which ranges from 3% to 5percent of the amount that is transferred.
The debt consolidation loans are priced between 6% and three percent APR depending on your credit score as well as the loan amount, and repayment time. Certain lenders will also charge an origination fee which is used to pay for taking care of your loan. This is a one-time fee that can range from 1 to 10 percent of the loan amount.
Remember that, even with these charges the balance transfer card , or debt consolidation loan may offer a lower interest rate than your current debts and you'll be able to save money.
Balance transfer against. personal loan

Balance transfer card



Personal loan



Type of debt


Best for paying off credit card debt only.



Ideal way to pay off credit card debts or any other type of debts that are not unsecured.



The amount of debt


The best option for debts of a smaller size that are able to be settled within the promotional timeframe, usually 15 to 21 months.



Best for larger debts which could take anywhere from one to seven years to pay off.



The qualifications criteria


Loans are available to borrowers who have excellent or good credit (690 credit score or better).



Available to borrowers across the credit spectrum that include those with fair or poor credit (689 score or less).
The ability to pre-qualify with certain lenders.



Costs


Includes zero-interest promotional period.
May charge 3% to 5% balance transfer fee.



Includes fixed monthly interest.
The company may charge 1%- 10% of the origination fee.









Consolidating your debt successfully

Consolidation can be a great way to get a handle on your debt. However, it doesn't address the your spending habits that lead to getting a balance transfer card or the debt consolidating loan.
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Establishing a can aid in keeping your expenses in check. The budget should include debt repayments and also the money you need for items you wish to buy.
Even more important is to ensure that you don't rack up huge balances on the credit cards you've paid off. A debt consolidating loan or balance transfer card isn't helpful if it ends up overspending your budget and forcing you further into debt.


The author's bio: Jackie Veling covers personal loans for NerdWallet.







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