Should You Get a Balance Transfer Credit Card or Debt Consolidation Loan?

The average American credit card holder carries a balance of $5,221, according to a 2021 report by credit bureau Experian. While some pay off their balance in full each month, an August 2022 report by the American Bankers Association shows that roughly 41% of credit card holders carry a balance from month to month.

Credit card debt can be expensive, with an average annual percentage rate of about 15% to 25%, according to calculations by U.S. News. If you’re trying to get out from under your balances, two financial products can help you do it: balance transfer credit cards and debt consolidation loans. Here’s what you need to know about both.

What Is a Balance Transfer Credit Card?

A balance transfer credit card offers an introductory promotion with a 0% APR or a low APR that you can use to transfer and pay down a balance from another card. Depending on the card, the promotional period may range from 12 to 21 months.

While paying down credit card debt interest-free is an excellent incentive, these cards often charge an upfront balance transfer fee, usually between 3% and 5% of the transfer amount. The card issuer will typically add the fee to your balance.

If you still have a balance at the end of the promotional period, the card will charge its regular APR on the remaining debt going forward.

“Customers are going to keep the card for longer than that promotional period,” says Rachana Bhatt, executive vice president and head of credit card, unsecured lending and retail lending distribution at PNC Bank. “So it’s important to know what the ongoing terms and fees are.”

Pros and Cons of Balance Transfers

There are both advantages and disadvantages to using a balance transfer credit card to consolidate your credit card debt. Here’s what to consider before applying for one.


  • Interest savings. If you can manage to pay off your full balance within the promotional period, you could easily save hundreds of dollars.
  • Flexibility. Because it’s a credit card, you won’t have a fixed repayment term, which means that you can adjust your payment as you wish. Just be sure you pay at least the minimum due every month.
  • Simplify your payments. If you have balances on multiple credit cards, you can transfer all of them to your new balance transfer credit card, ending up with one monthly payment instead of multiple payments.


  • Balance transfer fees. Although you can enjoy big savings on interest, you’ll need to consider the cost of the upfront balance transfer fee and how that compares with the cost of other consolidation and debt payoff options.
  • Credit requirements. You’ll typically need good credit to get approved for a balance transfer credit card, which means that this option may not be available if your credit score is under 670. Even if it’s over that threshold, card issuers will consider various factors, and approval isn’t guaranteed.
  • Credit limits. Credit card issuers don’t disclose credit limits until approving your application and opening your account. As such, there’s no way to know beforehand whether you’ll qualify for a high enough limit to transfer all of your debt. If the limit isn’t high enough, you may need to pursue additional options to pay down all of your debt.
  • Debt risk. If you can pay off your balance within the 0% APR period, a balance transfer credit card can provide a lot of value. But if you don’t stick to your payoff plan or you run into some unexpected snags along the way, you may still end up with high-interest debt after the promotional period ends. 

What Is a Debt Consolidation Loan?

A debt consolidation loan is a personal loan you can use to pay off credit cards and other types of debt. These loans don’t provide a low introductory rate but can give you a more stable repayment plan.

As of September 2022, personal loan interest rates range from about 4% to 36%, depending on the lender and your creditworthiness. Repayment terms typically range from one to seven years.

Some consolidation loans come with an origination fee, but that’s not always the case. If you apply with a lender that charges one, the origination fee can be as high as 8%. If there is an origination fee, it’s typically deducted from your loan disbursement, requiring you to borrow more to consolidate your full debt amount.

“For a debt consolidation loan to work, you also need to address any underlying bad spending habits or financial challenges that put you in debt in the first place,” says Andrew Latham, a certified financial planner and director of content at SuperMoney. “Some fall into the trap of maxing out their credit cards as soon as the consolidation loan pays off their balances.”

Pros and Cons of Debt Consolidation Loans

As with balance transfer credit cards, consolidation loans have both benefits and drawbacks to consider before you proceed. Here’s what to keep in mind.


  • Structured repayment. If you’ve struggled with sticking to a payment plan with your credit card, having a fixed repayment term with a personal loan could help you avoid staying in debt longer than you need to.
  • Potentially lower interest rate. You won’t get an introductory 0% APR with a consolidation loan, but you may be able to secure a lower interest rate than what you’re paying on your credit cards.
  • Higher loan amounts. You can typically secure a higher loan amount with a personal loan than you can with a credit card’s limit. If you have a lot of credit card debt you want to consolidate, a personal loan may be a better choice.


  • Origination fees. Some lenders charge origination fees that require you to borrow more. They can also eat into the potential savings you could obtain with a lower interest rate.
  • Credit requirements. There are personal loans available for consumers across the credit spectrum. But if you want an interest rate that beats your credit cards, you may need good credit or better to get approved.
  • Higher monthly payments. You can generally expect higher monthly payments on a personal loan than you’d get with a minimum credit card payment. Make sure that you can afford your new monthly payment before you commit. 

When to Choose a Debt Consolidation Loan

When it comes to paying off your credit card debt, there’s no one-size-fits-all solution. Assess your situation and goals to determine whether you should get a balance transfer credit card or a consolidation loan or if you should go another route altogether.

“It’s important to look holistically at the whole value proposition before making the decision,” says Bhatt.

“Consolidating your debt with a 0% APR balance transfer card sounds great in theory,” says Latham, “but it can get tricky with larger amounts.”

If you have tens of thousands of dollars in debt, you may have a better chance of consolidating all of it with a loan than you would with a balance transfer card. And payments may be more affordable if your loan terms are longer than a balance transfer card’s introductory period.

A personal loan may also be a better option if you’re concerned about adding the temptation of another credit card or you’ve struggled with sticking to your plan to pay off debt with extra credit card payments.

When to Choose a Balance Transfer Credit Card

If you have a lower balance and want to pay it off within a card’s interest-free period, you might consider getting a balance transfer credit card. This option may also be worth considering if you have no problems with committing to your own repayment plan and want to maximize your interest savings.

If you choose a balance transfer card, though, do whatever you can to pay off as much of your debt as possible before the benefit expires. “If you just use it as a Band-Aid to postpone the inevitable, you could find yourself with more credit card debt at the end of the promotional period than at the beginning,” says Latham.

What Alternatives Are Available?

Balance transfer credit cards and consolidation loans are good options to help you eliminate your debt, but they might not be the best fit for you. Here are some potential alternatives that can help:

  • Tapping home equity. If you own a home and have a significant amount of equity in the property, you may be able to tap your home equity through a home equity loan, home equity line of credit or cash-out refinance. These options may carry lower interest rates, but they can also have high closing costs, and you may lose your home if you fall behind on payments.
  • 401(k) loan. Borrowing from your retirement doesn’t require a credit check, and all of the principal and interest you pay goes back into your 401(k) plan. However, there may be tax implications if you can’t repay the debt, particularly if you leave your employer and have an accelerated repayment plan.
  • Debt management plan. If you’re struggling to keep up with payments and your credit is in less-than-stellar shape, a nonprofit credit counseling agency may help you with a debt management plan. For modest upfront and ongoing fees, credit counselors can help you secure a lower monthly payment and interest rate and pay down your debt over three to five years. However, you may need to cancel your credit cards to get approved, which can damage your credit.

In many cases, people fall into credit card debt due to circumstances outside of their control, such as medical bills, divorce, unemployment and other factors. However, if your spending habits contributed to your situation, consider getting on a budget and looking for ways to cut back on spending to avoid falling back into old habits. That’s the best long-term solution.

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