Balance Transfer Credit Card vs. Personal Loan: Which Is the Better Option for Debt Repayment?

A balance transfer lets you transfer debt from one credit card to another. Ideally, the card to which you transfer the debt will have a lower APR than the one you wish to pay off. Some balance transfer cards come with time-based 0% APR offers too. For instance, the U.S. Bank Visa® Platinum Card comes with a 0% APR offer on balance transfers for 20 months, whereas the Wells Fargo Active Cash® Card offers 0% APR on balance transfers for 15 months.

A personal loan, on the other hand, can be used to pay off existing credit card debt. But it can also be used for other legitimate purposes. Unlike balance transfer cards, personal loans do not come with 0% APR offers.

If you plan to repay your existing credit card debt within a year or a year and a half, you may benefit by getting a credit card with a 0% APR offer on balance transfers. However, if you think it'll take longer, getting a personal loan with a low ongoing APR might be the better option.

• Is a Balance Transfer the Same as a Personal Loan?
• Pros and Cons of Using a Balance Transfer or Personal Loan for Debt Repayment
• Should You Get a Personal Loan or a Balance Transfer Credit Card?

While there are similarities, a balance transfer is not the same as a personal loan. For starters, balance transfers are linked to credit cards, whereas personal loans are not. A balance transfer credit card might be a suitable option if you wish to pay off high-interest credit card debt in a relatively short period of time. Personal loans, on the other hand, tend to serve as better long-term solutions.

If you transfer an existing credit card balance to a new card with a 0% APR offer, you need to pay off the entire amount before the end of the promotional period to avoid interest charges. After this period, any outstanding amount starts accruing interest at the card’s regular balance transfer APR.

If you wish to pay off your credit card debt over a prolonged period of time or if you need to repay a large debt, you may consider looking at what personal loans have to offer. While personal loans tend to come with higher credit limits than credit cards, they also can come with a comparatively low APR.

Depending on your situation, you can get either a personal loan or a balance transfer to repay existing credit card debt. In both cases, eligibility and the interest rates you get depend on your creditworthiness.

>>MORE: BEST BUSINESS CARDS FOR BALANCE TRANSFER

>> More: What Happens When You Transfer a Balance on a Credit Card?

There is no clear winner in the personal loan vs. balance transfer comparison because both have potential advantages and drawbacks. What is important in both cases is that you have a clear repayment plan in place before you decide on a course of action. You should also take your spending patterns and individual requirements into account at the very onset. Looking at the pros and cons of balance transfers and personal loans will help you determine which one might work better for you.

>> More: What Are the Advantages and Disadvantages of a Balance Transfer?

Making a balance transfer or applying for a personal loan can be helpful when you need to pay off existing credit card debt. However, determining which of the two might work better requires paying attention to factors such as the amount you owe, the interest you might need to pay, your creditworthiness and your ability to make repayments.

• The amount you owe: While balance transfers are more suitable for paying off small debts, personal loans can help you clear significantly large debts. Unfortunately, whether you get a personal loan or a balance transfer credit card, you won’t know the limit you qualify for until your application is approved. Several personal loans come with minimum limits, which you can use to arrive at a short list. With credit cards, balance transfer limits are typically a fraction of their overall credit limits.
• Interest rates: Several balance transfer credit cards come with 0% APR offers that stay in place for 12 to 21 months. However, any remaining balance starts accruing interest at a card’s regular APR once the promo period ends. While personal loans do not have 0% APR offers, their APRs can be lower than regular balance transfer APRs of credit cards. If you manage to repay your entire debt before the end of a balance transfer credit card’s promo period, it might be the more cost-effective option.
• Fees: Credit cards with balance transfer offers usually charge 3% to 5% of the transferred amount as fees. If you get a personal loan, you might need to pay a loan origination fee of up to 6%, although some issuers do away with this fee. Depending on your loan provider, you might be burdened with a prepayment penalty if you wish to pay off the loan earlier than scheduled. Both come with varied late and returned payment fees as well.
• Creditworthiness: Qualifying for a balance transfer credit card usually requires that you have good to excellent credit. On the other hand, people with average credit can choose from several personal loan options. If the only form of credit you currently use is credit cards, getting a personal loan will add to your credit mix. This, in turn, has a positive effect on your credit score. Since a personal loan is regarded as an installment loan, using it to repay credit card debt has a positive effect on your credit utilization ratio (the amount you owe in comparison to your total available credit limit). This, too, helps improve your credit score. Bear in mind, though, that applying for a new balance transfer credit card or a personal loan will bring your credit score down by a few points.
• Making repayments: With a balance transfer credit card, you have the option of paying any amount over the minimum money payment. With a personal loan, you need to make fixed monthly payments through the course of the loan. Take a look at how much you can afford to pay each month and determine if you might be able to repay all or a large chunk of the debt within a credit card’s balance transfer promo period. If you’re going the personal loan route, check the variation in monthly payments for different loan terms to determine which fits your bill the best.

Consolidating and repaying debt by getting a balance transfer credit card and a personal loan is an option. In such a scenario, you may get a balance transfer card with a 0% APR offer to repay high-interest credit card debt within the card’s promo period. If you cannot transfer the entire amount you owe to your new card, or if you feel you might not be able to repay it completely before the end of the promo period, you may consider getting a personal loan with a low APR to cover the remaining amount. This way, you don’t have to worry about paying high interest charges once your card’s regular APR comes into effect.

>> More: How Much Money Could a Balance Transfer Save You?

Taking a look at answers to other commonly asked questions about the balance transfer vs. personal loan comparison may further simplify your decision-making process.

Now that you know where the balance transfer credit card vs. personal loan comparison stands, determine which of the two might work better for you. If you choose to get a balance transfer card, make sure you compare your options against parameters such as length of 0% APR periods, balance transfer fees, annual fees and regular APRs.