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Personal loans vs. balance transfer credit cards: Which is best for debt consolidation?

Debt consolidation loans vs credit cards to pay down your debt depends on rates and more.

One in four (75%) Americans say they’re stressed about their current financial situation, according to Finder’s Consumer Confidence Index(1). One way to improve financial well-being is to eliminate or lower the stress around the debt we carry.

Debt consolidation is a common strategy to simplify debt and save on interest payments. But how we consolidate our debt comes down to two popular options: personal loans and balance transfer credit cards.

We’ll weigh three major points of comparison so you can choose the approach best suited for your situation.

Interest rates and savings potential

One of the main reasons for consolidating your debt is to exchange multiple high-interest debts for one payment with a lower interest rate overall. Start by comparing the interest rates between a balance transfer credit card and a personal loan.

Personal loans typically offer fixed interest rates, some as low as 4.6% APR but can range up to 36% APR, depending on your credit score. The best debt consolidation loans have low starting APRs and no origination fees.

Balance transfer credit cards may offer an introductory 0% APR period for an average of 18 to 21 months, but you’ll typically have to pay balance transfer fees of 3% to 5% on each balance transfer. And if you don’t pay off your debt in time, you may be struck with high interest rates against your remaining balance, since interest rates on credit cards are typically higher than with personal loans.

Choose the option that provides the most substantial interest savings over the consolidation period, keeping in mind fees and the time it will take to pay off your debt.

Total debt amounts and consolidation limits

Tally up the total amount of debt you want to consolidate. Compare your total debt amount to the borrowing limits on personal loans and balance transfer cards.

Balance transfer credit cards limit how much debt you can transfer, which is typically determined by which card you go with and your creditworthiness. Your balance transfer limit is often capped at 75% of your overall approved credit limit. However, some banks may have set limits, like $15,000. But there is no guarantee you’ll be approved for a limit that high. Plus, balance transfer fees are included in your debt and count towards your limit.

For example, let’s say you’re only approved for a balance transfer limit of $8,000, but you have a 5% balance transfer fee. You’ll only be able to transfer $7,600 in debt, since you need to include $400 worth of balance transfer fees.

Debt consolidation loans are better suited for large amounts of debt. Some of the top debt consolidation loans can offer borrowing limits well over $20,000. Both a personal loan and balance transfer credit card consider your creditworthiness when determining the limits you’re approved for.

And if you have more than credit card debt to consolidate, a personal loan can consolidate all your debts into one, simplifying the repayment process.

Repayment plan and discipline

Consider your financial habits, ability to follow a repayment plan and the financial discipline you’ll need to meet the repayment obligations when deciding how to repay your debt.

Personal loans typically have fixed repayment periods and structured installment payments. This can help you stay on track with your debt-elimination goals.

A balance transfer credit card may require careful management of multiple promotional periods and varying interest rates to ensure you make the most of your interest savings. To maximize your savings, you’ll need to budget monthly payments well above the minimum payment while your introductory APR period is still in effect.

Wrap up

How much debt you want to consolidate, the interest rate you can score based on your creditworthiness and the right repayment plan for your lifestyle are all factors that can help you choose the right debt consolidation option for you.

If the amount of debt you want to consolidate is on the lower end and you can qualify for a 0% APR balance transfer credit card, that may be the right option for you. But if you want to consolidate a larger debt and need a structured repayment plan, you may opt for a debt consolidation loan instead.

About the Author

Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time,, and, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics. .

This article originally appeared on and was syndicated by

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