Debt consolidation loan vs. balance transfer credit card | Finder Canada

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

Debt consolidation loans vs. balance transfer credit cards

Looking to pay off your debt faster? Compare balance transfer credit cards and debt consolidation loans to see which is right for you.

Updated

Fact checked

While debt consolidation loans work well for paying down large amounts of debt, balance transfer credit cards can help you save even more money if you can pay off your debt within the promotional period. While both balance transfer credit cards and debt consolidation loans can help you pay down your debt, your own personal financial situation and your commitment to paying down your debt will determine which is the right option for you.

Compare debt consolidation loans and balance transfer credit cards

Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score Link
Loans Canada Debt Consolidation Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$50,000
3-60 months
No application or origination fees
300
Go to site
More Info
Fairstone Debt Consolidation Loan
19.99% - 39.99%. Varies by loan type and province
$35,000
6 months - 10 years
None
560
Go to site
More Info
Consolidate your debt up to $20,000 for an unsecured loan and $35,000 for a secured loan.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 10.00%-46.96%
$50,000
3-60 months
No application or origination fees
300
Go to site
More Info
LoanConnect is an online broker that matches borrowers to lenders offering loans in amounts from $500 to $50,000. Get approved for multiple loan offers from different lenders in as little as 60 seconds with any credit score.
Mogo Personal Loan
9.90% - 47.42%
$35,000
9 months - 5 years
NSF fee - $20 - $50
540
Go to site
More Info
Mogo offers loans up to $35,000 on flexible terms.
loading

Compare up to 4 providers

Name Product Purchase Interest Rate Cash Advance Rate Annual Fee Minimum Income Benefits with this card Description
BMO Preferred Rate Mastercard
12.99%
12.99%
$20
$15,000
Take advantage of an introductory balance transfer offer, annual fee waiver in the first year, and low purchase and cash advance interest rates.
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
Tangerine Money-Back Credit Card
19.95%
19.95%
$0
$12,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
Tangerine World Mastercard
19.95%
19.95%
$0
$60,000
Earn 2% cash back in two categories of your choice (or three categories if you open a Tangerine Savings Account and directly deposit your cash back into the account), and 0.5% cash back on everything else.
Get a 1.95% interest rate on balance transfers for the first six months (valid within the first 30 days of account opening).
BMO Rewards Mastercard
19.99%
22.99%
$0
$15,000
Get 1 BMO Reward point for every $1 spent on eligible purchases, and get 2 BMO Rewards points for every $1 spent at participating National Car Rental and Alamo Rent A Car locations.
Get a bonus of 10,000 BMO Rewards points when you spend $1,000 in the first 3 months. Apply by October 31, 2021 . Plus, get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO AIR MILES Mastercard
19.99%
22.99%
$0
$15,000
Get up to 5x the AIR MILES Reward Miles on groceries Valid until May 31, 2021.Plus, get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a rate of 1.99% on balance transfers for 9 months. A 1% fee applies to transferred balances.
BMO CashBack Mastercard
19.99%
22.99%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get 5% cash back on all eligible purchases in the first three months of card membership (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
BMO AIR MILES Mastercard For Students
19.99%
22.99%
$0
$15,000
Get up to 5x the AIR MILES Reward Miles on groceries Valid until May 31, 2021. Plus, get 3x the AIR MILES for every $25 spent at eligible AIR MILES partners, and get 1 AIR MILE for every $25 spent elsewhere.
Get 800 AIR MILES Bonus Miles (enough for $80 towards purchases with AIR MILES Cash). Get a 1.99% introductory interest rate on balance transfers for 9 months. A 1% fee applies to balance amounts transferred.
BMO CashBack Mastercard For Students
19.99%
22.99%
$0
$15,000
Earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases.
Get up to 5% cash back in the first three months (up to a maximum spend of $2,000, and earn 3% cash back on groceries, 1% on recurring bill payments and 0.5% on all other eligible purchases thereafter). Plus, get a rate of 1.99% on balance transfers for 9 months, with a 1% fee for every transferred balance.
Scotiabank Value Visa Card
12.99%
12.99%
$29
$12,000
Save on interest for 6 months by consolidating your higher-rate balances with the balance transfer offer, and get an on-going 12.99% interest rate on purchases, cash advances and balance transfers.
Get a 0.99% introductory interest rate on balance transfers with a 0% transfer fee for the first 6 months. Apply by July 1, 2021.
Scotia Momentum Visa Card
19.99%
22.99%
$39
$12,000
Earn 2% cash back on all eligible gas station, grocery store and drug store purchases and on recurring bill payments (up to a $25,000 annual spend), and earn 1% cash back on all other eligible purchases (and on all eligible purchases once the $25,000 annual spend is reached).
Earn 7.5% cash back on all purchases for the first 3 months (up to $2,000 in total purchases). Plus, get a 2.99% introductory rate on balance transfers and a 0% balance transfer fee for the first 6 months. Apply by May 2, 2021.
loading

Compare up to 4 providers

How do debt consolidation loans and balance transfer credit cards work?

Debt consolidation loanBalance transfer credit card
How it worksTake out a term loan, use it to pay off multiple debts, then repay your debt consolidation loan.Transfer your debts to a credit card and make monthly repayments until it’s paid off.
CostsAPR starting at 4% for the duration of the loan.Low or 0% introductory APR on transferred debt, around 8.99% to 21.99% APR on purchases, plus a 0% to 5% transfer fee and an annual credit card fee of $0 to $100.
Repayment timeUsually between one and seven years.Indefinite, though introductory period typically lasts between 6 to 12 months.
What it’s great forPaying off a large amount of debt over a long period of time with a lower interest rate.Paying of debt quickly and avoiding paying interest altogether.
Where it falls shortWon’t save you much if you have a small amount of debt you can afford to pay off in under a year.Interest rates can spike to around 21.99% after the introductory period is up.
Compare offers nowCompare offers now

Debt consolidation loan

A debt consolidation loan is a fixed-term personal loan that you take out to pay off multiple debts — usually personal loan and credit card debt. You then pay off your debt consolidation loan plus interest and fees in one monthly repayment.

Debt consolidation loans:

  • Usually come with lower APRs than your original debts — you can sometimes find APRs as low as 4%.
  • Sometimes come with origination fees, usually between 1% and 3% of your loan amount. Lenders typically deduct the origination fee from your loan amount before you receive your funds, so make sure to ask for enough to cover your debts and the origination fee when applying.

Balance transfer credit card

A balance transfer credit card is another method of moving all of your debts into one place. Once you sign up for a balance transfer credit card, your credit card provider pays off the balances of your debts, which can include credit cards, personal loans and more. Then you make repayments on the balance transfer credit card.

Balance transfer credit cards:

  • Often come with 0% or low APR introductory rates, meaning that you don’t have to pay interest or fees for the first 6 to 15 months, depending on the balance transfer offer. This introductory rate allows you to save big on interest if you can pay off all or most of your debt in that time frame.
  • Many balance transfer cards often charge a transfer fee, which is usually 1% to 5% of the total transfer amount.

When is a debt consolidation loan better?

Debt consolidation loans are often better when…

  • You have a large amount of debt. Balance transfer credit cards come with credit limits, so you might not be able to fit all of your debts on to one.
  • You can’t afford to repay your debt quickly. Debt consolidation loans give you more time to pay off your debt at a lower interest rate than balance transfer credit cards do — meaning more affordable monthly repayments.
  • You’re willing to put up collateral. If you apply for a secured debt consolidation loan, you can get even lower rates by using an asset as collateral.
  • You have bad credit. Qualifying for a competitive balance transfer credit card offer can be difficult when you have a low credit score. You might have more success with a secured personal loan, which is generally a less expensive option for bad credit borrowers.

When is a balance transfer credit card the better option?

A balance transfer credit card might be a better option when…

  • You can afford to pay off your debt fast. If you can pay off your debt within the introductory period, you can save more with a balance transfer credit card than with a debt consolidation loan.
  • You’re consolidating credit card debt only. Balance transfer cards make the process seamless to pay off credit card balances from other providers. Even though you can use a personal loan to consolidate credit card debt, you might find it simpler to transfer the debt to a new credit card.
  • You’re willing to spend the time applying for new cards. Even if you aren’t able to repay your debt by the time your introductory period is over, you can always apply for a new balance transfer credit card and start all over again. Keep in mind that you need to maintain a good enough credit rating to qualify for a new balance transfer card.

4 questions to ask when weighing your options

Ask yourself the following questions to decide which is better for your financial situation:

  1. How much debt do I have?
    Debt consolidation loans pack the biggest punch for large amounts of debt. Balance transfer credit cards are generally better for smaller amounts, due to credit limits and shorter 0% or low interest introductory periods.
  2. How much can I afford to pay each month?
    Debt consolidation loans typically come with longer terms than balance transfer credit cards, making monthly repayments lower, while balance transfer credit cards can motivate you to get out of debt quicker.
  3. How’s my credit score?
    While you need good credit to qualify for competitive rates and terms with both balance transfer credit cards and debt consolidation loans, there are more options for people with bad credit in the debt consolidation loan space.
  4. Do I want another credit card?
    Balance transfer credit cards only come with minimum monthly payments, which means you don’t actually have to pay the balance off in full each month. However, debt consolidation loans do that work for you — giving you one less thing to worry about.

Mindy gets out of debt

During university, Mindy’s bills started becoming more and more difficult to keep track of. Her total debt added up to $11,000 with an average APR of 15%. She had an excellent credit score — around 800 — and expected to qualify for most loans.

She applied to get pre-approved for a balance transfer credit card and a personal loan that could be used for debt consolidation. Here’s how the offers compared:

Debt consolidation loanBalance transfer credit card
Time to pay off debt3 years12-month introductory period
Loan amount/credit limit$11,000$15,000
APR6.03%0% for introductory period, 18% after
Monthly payment$334.64$953.33 to pay off debt before intro period ends
FeesNo upfront feeBalance transfer fee of 4% ($440)
Total interest and fees$1,047.09$440

Although the balance transfer credit card was less expensive in the long run, Mindy couldn’t afford to pay over $950 a month toward her debt and didn’t want to apply for another balance transfer credit card in a year’s time. Because of this, she opted for a debt consolidation loan instead.

If she could have paid $950 a month toward her debt, she would have saved just over $600.

Bottom line

If done right, both debt consolidation loans and balance transfer credit cards can help you organize and pay down your debt, while saving on interest charges. Debt consolidation loans are generally better for people with large amounts of debt that don’t mind paying a little more in the long run for lower monthly payments. Balance transfer credit cards are often best for organizing a small amount of debt that you can afford to pay off over a short period of time.

Frequently asked questions

Pictures: Shutterstock

More guides on Finder

Go to site