Consolidating Your Debt With A Personal Loan Vs. A Balance Transfer Card

Debt consolidation is a management strategy that combines all of your outstanding payments into one bill. Personal loans and balance transfer credit cards are the two most common ways to consolidate debt. Each suits various situations and needs differently, so breaks these two methods down so you can better understand them and pick the best choice for you. 

What Are Personal Loans?

Financial institutions lend borrowers money in the form of personal loans. The borrower is expected to repay the amount, plus interest, for a certain period. When people use personal loans for debt consolidation, they borrow an amount equal to their outstanding balances to repay the other creditors in full. This leaves the borrower with one loan to pay back, rather than multiple bills from many companies.

What Are Balance Transfer Credit Cards?

Balance transfer credit cards are specifically for helping with debt management. These cards let you move the debt you have to one or more lenders onto a single card. Often, balance transfer credit cards lower or waive interest rates for the introductory period. This allows you to make bigger repayments while saving on interest. 

If you choose to use a balance transfer card to consolidate your debt, make sure you note the duration of the promotional period. If you don’t pay back the balance before it ends, you could get stuck with more interest than before. Shop and compare offers and issuers so you can find the best card for your needs.

Should You Get A Personal Loan Or Balance Transfer Card?

Here are a few things to consider when deciding between getting a personal loan or a balance transfer credit card.

Determine How Much Debt You Have (And What Kind It Is)

First, calculate the sum of all the debt you owe, then decide a practical amount to pay each month to determine how long it will take to repay. After that, look for a lender or credit card that will take that full amount.

Although the lender decides what you must pay every month for a personal loan, and balance transfer cards have minimum payments, knowing how much you are willing to pay every month beforehand can help in the decision-making process.

For example, if you are leaning toward getting a balance transfer card, but you can’t repay your debt by the end of the introductory period. In that case, you may consider a personal loan instead so that you don’t get hit with steep monthly interest payments.

Moreover, balance transfer cards frequently restrict the kinds of debt you can move, so you may not be able to consolidate everything with this type of card. Conversely, personal loans are more versatile.

Create A Timeframe For Repayment

It’s vital that you know how long it will take you to repay all of your debts. While the minimum monthly payment on a balance transfer card could be less than that of a personal loan, you will probably have to cover more than the minimum to ensure you pay everything off before the introductory period ends. If you struggle with financial discipline, a personal loan’s regularity and flat rate may serve you better.

Get Approved

Your credit score and ability to repay the lender affect your chances of approval, as well as the interest rate offered to you by the lender. If you want a balance transfer card with no interest, you will need a good or excellent credit score.

Your creditworthiness also determines your credit limit. When consolidating debt with a balance transfer card, you need a credit limit that’s high enough to assume the full amount you want to transfer. 

Consider The Effect On Your Credit Score

It doesn’t matter if you get a personal loan or balance transfer card. All that matters is that you make your payments on time. However, both methods can affect your credit utilization ratio, which tells creditors how much you are currently borrowing out of the available funds they lent. Credit utilization is an important aspect of your credit rating.

If you left your old credit card accounts open but sought a personal loan to eliminate their outstanding balances, your credit utilization ratio would fall, benefitting your credit score. Alternatively, if you consolidated your debt with a balance transfer card (without canceling the old cards), you would need to pay attention to the new card’s credit limit to avoid maxing it out and hurting your credit utilization ratio. 

As long as you pay at least the minimum monthly payment on time and avoid taking on new debt, either method can prove to be a valuable way to help manage your debt. 


  • Marcus by Goldman Sachs. “Balance Transfer vs. Personal Loan: Marcus by Goldman Sachs®.” Balance Transfer vs. Personal Loan | Marcus by Goldman Sachs®, Marcus by Goldman Sachs, 9 June 2020,
Ian Schindler