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Nerdy takeaways
- Two popular ways to consolidate debt include a balance transfer credit card and a personal loan.
- Balance transfer credit cards are best for borrowers with good to excellent credit who can pay off their credit card debt during the 0% promotional period.
- Personal loans are best for borrowers who have higher debt amounts or a mix of unsecured debts, and are available even if you have bad credit.
Balance transfer credit cards and personal loans for debt consolidation are two common tools that can help you pay off debt faster, more simply and with less interest.
But how do you choose between a balance transfer card and a personal loan? It depends on factors like the type and amount of debt you have and which financial product you qualify for.
Balance transfer vs. personal loan
A balance transfer is a consolidation strategy in which you move your existing credit card balances onto a new card that offers a 0% promotional period. You then pay off the debt before that period ends.
A balance transfer is best for consolidating credit card debt and is available to borrowers with good to excellent credit.
A personal loan for debt consolidation — often called a debt consolidation loan or credit card consolidation loan — is a lump sum you use to pay off all your unsecured debts at once. You then pay back the loan with fixed interest over a set term.
A debt consolidation loan is best for consolidating larger unsecured debts and is available to borrowers across the credit spectrum.
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How to choose between a balance transfer or personal loan
Ask yourself these four questions to determine how to best pay off your debts.
1. What type of debt do you have?
The type of debt you have may help you determine which product is the best fit.
For example, a balance transfer card works by letting you move high-interest credit card debt to the new credit card, but you can’t always transfer other types of debt.
A debt consolidation loan has more flexibility. You can use it to pay off multiple types of unsecured debts, including credit cards, medical bills, payday loans and existing personal loans.
2. How long will it take to pay off your debt?
How much money you owe — and how long it will take to pay it off — is another important consideration.
A balance transfer card may have a lower credit limit than a loan, so it’s best for smaller debts. Depending on how much debt you have, the card issuer may not approve you for the full amount.
These cards also have promotional annual percentage rates (APR) of 0% for a limited period of time, usually 15 to 21 months. The APR is the card’s interest rate, so that means you’ll pay zero interest during that time.
Make sure you can pay off your debt within that initial period. If not, any remaining balance is subject to the standard APR, which may be the same or higher than the rate on your current debts.
A debt consolidation loan has a longer repayment period, usually two to seven years. Many lenders offer high loan amounts, sometimes $50,000 or higher.
Though you won’t save as much money on interest, a debt consolidation loan is usually a better fit for people with larger debts who need more time to pay them off.
3. Which product can you qualify for?
Balance transfer cards and debt consolidation loans have different qualification criteria, though both look at your overall credit. It’s a good idea to check your credit score before applying.
Borrowers with good to excellent credit (any score in the mid 600s or higher) may qualify for both a balance transfer card and a debt consolidation loan.
If you have fair or bad credit (any score between 300 and the low 600s), you may only be able to qualify for a loan. (See our picks for the best debt consolidation loans for bad credit.)
You can often pre-qualify for a personal loan, which means you can check potential loan terms without hurting your credit score.
Personal loans from our partners
SoFi 
APR
7.74-35.49%
Loan Amount
$5K-$100K
LightStream 
APR
6.49-24.89%
Loan Amount
$5K-$100K
Best Egg 
APR
6.99-35.99%
Loan Amount
$2K-$50K
4. What are the costs?
Finally, compare the costs of consolidating with each product.
Though balance transfer cards come with a promotional 0% APR period, many charge a balance transfer fee. This is typically 3% to 5% of the total amount transferred.
Debt consolidation loans charge 6% to 36% APR, depending on your credit profile, debt-to-income ratio, desired loan amount and repayment term.
Some lenders also charge an origination fee that covers the cost of processing your loan. This is an upfront fee that ranges from 1% to 10% of the loan amount.
Even with these fees, a balance transfer card or debt consolidation loan may help you save money by reducing the overall interest you’re paying on your debt.
🤓 Nerdy Tip
Need help comparing costs? Plug your debts into a balance transfer calculator or a debt consolidation loan calculator to see potential savings. These free tools can also help you add up your debts in one place. Tips to consolidate your debt successfully
Consolidating can be an effective way to get a handle on your debt. But it won’t address core spending habits.
Establishing a realistic budget can help you avoid overspending in the future. The budget should include debt payments, as well as money for things you need and want to buy.
It’s also important to avoid running up large balances on the credit cards you’ve paid off. A debt consolidation loan or balance transfer card won’t be helpful if it ends up pushing you further into debt, hurting your credit score. (Learn more about how debt consolidation affects your credit.)
Ready for next steps?
If you’re confident in your credit score and ready to consolidate your credit card debt, check out NerdWallet’s picks for the best balance transfer cards.
If you have a lower credit score, or just want more time to pay off your debt, we’ve researched the best debt consolidation loans. You can also pre-qualify with multiple lenders on NerdWallet to see your loan options without hurting your credit score.
