Balance Transfers Vs Personal Loans: Which Is Right for You?

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Last updated on April 3rd, 2024

In today’s complex and ever-changing financial landscape, it’s vital to understand the various options available for managing debts clearly. Two popular choices are balance transfers and personal loans. While both can be effective tools for consolidating debt or financing a large purchase, getting the right loan product for your needs is essential.

What is a Balance Transfer?

A balance transfer is when you transfer an existing credit card debt to another credit card account. Typically, a balance transfer happens in the pursuit of a lower interest rate. With a lower interest rate on an existing credit card debt, the debtholder has a better chance of chipping away faster at the balance and paying less interest, potentially saving hundreds of dollars in the long run. For example, you can transfer your debt from a credit card with a high APR (annual percentage rate) to a lower interest rate, like a 0% intro APR credit card.

Benefits of Balance Transfers

As mentioned, balance transfers are a common method used to reduce the interest rate on a debt. When you are burdened with a high interest rate, a significant portion of your payment goes towards interest charges, making it difficult to see any progress in paying off that debt. However, the option of transferring that debt to a lower interest rate can bring a sense of relief, as it could reduce the overall amount you pay while repaying the balance, which can help you get out of debt faster.

In many instances, a balance transfer involves moving a debt to a credit card that offers a promotional interest rate. This can include transferring the balance from a high-rate installment loan or from another credit card to the new credit card, effectively lowering the interest rate you are currently paying. The beauty of balance transfers is that they are not limited to credit card debt. You may also be able to transfer multiple smaller balances from other credit card accounts, providing you with even more flexibility and control in managing your debts.

Potential Drawbacks of Balance Transfers

While balance transfers can be useful for managing debt, it’s important to know the potential downsides. One such downside is the balance transfer fee, typically a percentage of the amount transferred. Additionally, paying off the transferred balance within the introductory period is crucial to avoid being subject to a higher interest rate. Failing to do so could negatively affect the benefits of the transfer and cost you money in the long run.

What is a Personal Loan?

Personal loans are lines of credit that typically have a fixed interest rate and are repaid in installments over a period of time, either short-term or long-term. Approval for a personal loan usually depends on the applicant’s credit score and debt-to-income (DTI) ratio.

A personal loan is not a way to shift your debt to a new creditor; it is a new debt. You can use a personal loan to consolidate your debts, bringing them together in one place and potentially obtaining a lower interest rate. For some individuals, a personal loan can result in lower monthly payments and help them pay off their debt faster.

Benefits of Personal Loans

Personal loans have their own set of advantages and disadvantages. One of the main benefits is their flexibility. Unlike balance transfers, which are limited to credit card debt, personal loans can be used for various purposes. Whether you need to consolidate debt, finance a major purchase, or cover unexpected expenses, a personal loan can provide the necessary funds.

Additionally, personal loans often come with fixed interest rates, ensuring that your monthly payments remain the same throughout the loan’s duration. This feature makes budgeting easier and provides peace of mind, knowing your payments won’t increase over time.

Potential Drawbacks of Personal Loans

However, it’s important to note that personal loans may have loan origination fees, which are upfront costs associated with processing the loan. Additionally, you may be subject to higher interest rates if you have a less-than-perfect credit score, making the loan more expensive overall. Finally, personal loans don’t feature any of the promotional financing you might find with balance transfer credit cards, such as 0% introductory APR.

Tips for Selecting the Best Option for Your Debt

The right option for you depends on your financial needs and goals. If you have high-interest credit card debt that you want to consolidate, a balance transfer may be the most cost-effective option. However, if you need funds for a major purchase or have various financial needs, a personal loan may provide the flexibility you want. It’s important to carefully evaluate your financial situation, consider the pros and cons of each option, and weigh the interest rates and fees associated with each choice.

Here are some important things to consider:

How Much Interest Will You Need to Repay?

Probably the most important consideration you’ll need to make is how much interest you’ll need to repay with both loan options. Many balance transfer cards offer an introductory balance transfer APR for transferred balances. On the other hand, personal loans generally do not offer a promotional interest rate period, but their interest rates may be significantly lower than those of credit cards.

If you plan on repaying the entire outstanding balance before any promotional APR period expires on a balance transfer credit card, that might be the right option. Conversely, if you expect to make payments for years, a personal loan may make more sense as you can expect a significantly lower interest rate than a card.

What’s Your Credit Score?

While balance transfer cards can be a great option for many, not everyone is eligible for a balance transfer credit card. If your credit score is poor or average, it may be challenging to get approved for one. Typically, you’ll need good or excellent credit to qualify for a balance transfer offer.

On the other hand, personal loans are more accessible to applicants with average credit. While the very best loan terms require good or excellent credit scores, several lenders, including secured loans, offer loans to applicants with near-prime or subprime credit scores. These subprime loans feature significantly higher interest terms than offers for prime and super-prime applicants, but they still provide an option.

What are the Fees?

Regardless of the loan option, fees apply to financing the debt. Personal loans typically have an origination fee ranging from 1% to 8% of the borrowed amount. Additional charges, such as application and prepayment penalty fees, vary depending on the loan provider and selected product.

For balance transfer cards, a fee of 3% to 5% of the transferred amount is usually charged, with a minimum fee of $5 to $10. However, some banks may waive or reduce these fees during promotional periods, typically within the first 60 days after account opening. Late payment fees and penalty APRs may also apply if a payment is missed, while annual fees are typically associated with rewards credit cards only.


When managing debt, it’s crucial to consider the choice between balance transfers and personal loans carefully. Each option has its advantages and disadvantages, so it is important to assess your financial situation and goals before making a decision. Remember, navigating the complex world of finance may seem overwhelming. Still, with the right knowledge and strategy, you can take charge of your finances and establish a solid foundation for a secure future.

Related Article: Can You Negotiate Credit Card Debt?

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About: Cory Santos
Cory Santos

Cory is the senior credit card editor at BestCards, specializing in everything credit card-related. He’s worked extensively with credit cards and other personal finance topics, including nearly five years at BestCards. Cory’s extensive knowledge is an essential part of the BestCards experience, helping readers to live their best financial lives with up-to-date insights and comprehensive coverage of all facets of the credit card space, including market trends, rewards guides, credit advice, and comprehensive credit card reviews.

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