A Balance Transfer Credit Card, or a Personal Loan: Which One Is best for You?

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The Balance Transfer Card or the Personal loan: Which One Is the Best for You?
Find two options to consolidate the burden of debt: balance transfer credit card or an individual loan.


Last updated on Jan 31 2023.

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Balance transfer credit cards and are two of the most popular consolidation strategies that could reduce your interest you owe and help you pay off debt faster and more simply.
However, how do you decide between a balance transfer card or a personal loan? Consider the following questions to determine which is the most effective way to pay your obligations.
What is the best way to decide between a balance transfer card and personal loan

When choosing between the credit card that allows balance transfer or a personal loan for debt consolidation There are four primary questions you should consider.
1. What kind of debt do I have?
The kind of debt you've got could assist you in deciding which product is most suitable for your needs.
It works, for instance, by letting you move high-interest credit card debt to this new card, however, you aren't able to transfer other debts.
A offers more flexibility. You can use it to pay off various 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 have?
How much money due as well as the time it takes to pay it off -is an additional important factor to take into consideration.
Balance transfer cards is likely to have the same credit limit as the typical loan, so it's best to deal with smaller debts. A balance transfer card comes with the benefit of a promotional APR of zero% for a limited period of time, usually from 15 to 21 months. It is important to ensure you can repay your debt in the initial time frame, and you'll not be charged any charges for interest.
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An unsecured debt consolidating loan comes with longer repayment terms generally ranging between one and seven years, and many lenders provide large loan amount, often up to $50,000. Although you may not save as much money on interest, a debt consolidation loan tends to be an ideal choice for those with more debt and who require longer time to pay off the debt.
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Nerdy Tip
If you're not sure the amount of debt you've got it is possible to input the current amount of debt, your interest rate, and monthly payments in a to get the full picture.


3. What product are you eligible for?
The balance transfer card and the debt consolidation loans have different qualification criteria, though both look at your credit score overall, therefore before you apply.
Borrowers with good to excellent credit (690 credit score or greater) could be eligible for either a balance transfer credit card as well as an installment loan. If you have poor or fair credit (689 credit score or less), you may only be eligible for the loan. Consolidation loans are accessible to all borrowers on the spectrum of credit.
>> COMPARE:
Depending on the lender, you might be able be pre-qualified for the loan, which means you are able to review possible loan conditions without affecting your score on credit.
Do you want to consolidate debt? Check if you are eligible for a credit consolidation loan.
Just answer a few questions to receive a personalized report of our loan partners.


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4. What are the costs?
Then, you can compare the costs of consolidating with each product. While balance transfer cards are offered with a promotional 0% APR period, many charge fees for transfer of balances that is usually 3 to 5% of the total amount transferred.
Debt consolidation loans are priced between 6% and the APR of 36%, based on your credit score as well as the loan amount, and repayment time. Some lenders will also charge an origination charge that is used to pay for taking care of your loan. This is an upfront fee that ranges from 1% to 10 percent on the loan amount.
Remember that, despite these costs that a balance transfer credit card or debt consolidation loan may have a lower APR than your current debts which means you could save money.
Balance transfer against. personal loan

Card for balance transfer



Personal loan



Kind of debt


Ideal for paying off credit card debts in one go.



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



Debt amount


The best option for debts of a smaller size that can be paid off within the promotional period typically 15 to 21 months.



The best option for bigger debts that could take between one and seven years to be paid off.



Qualification criteria


Credit is available to those with excellent to excellent credit (690 credit score or more).



The loan is available to borrowers across the credit spectrum that include those with bad or fair credit (689 score or less).
Possibility to pre-qualify for certain lenders.



Costs


Includes zero-interest promotional period.
The company may charge 3% to 5% balance transfer fee.



Fixed monthly interest.
It is possible to charge 1% to 10% of the origination fee.









Consolidating your debt successfully

Consolidation can be a great method of gaining control of your financial burden. But it won't address spending habits that led to getting a balance transfer card or the debt consolidating loan.
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The creation of a budget can help you keep budgeting in line. Your budget should contain debt repayments and also money for things you want to purchase.
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 won't be helpful if it ends up overspending your budget and forcing you further into debt.


Author bio Jackie Veling covers personal loans for NerdWallet.







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