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When it comes to consolidating debt and lowering your interest expense, credit card balance transfers and personal loans can be two excellent and similar options.
However, like most financial products, both balance transfers and personal loans have pros and cons to consider. For example, while balance transfers may have a 0% intro APR, they often come with a fee and have relatively short promotional periods.
With that in mind, here's a guide to help you decide which is the best choice to help you take control of your debt.
It used to be rather difficult to obtain a personal loan, especially if you didn't want to pledge collateral. That's changed in recent years, as many online lenders and traditional banks have rapidly expanded into the unsecured personal loan market.
In most cases, you can check your ability to obtain a personal loan without initiating a hard credit inquiry, meaning that it won't affect your credit score to see if you qualify and what your interest rate might be. You can find personal loans in amounts ranging from $1,000 to $100,000 from a variety of lenders.
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When you're looking for a personal loan, focus on lenders offering low interest rates and fees. These hidden costs can eat into your budget if you're not careful! For a list of our experts' favorite lenders, check out our best personal loan lenders page.
There are many situations when using a personal loan to borrow money may be ideal, such as:
But personal loans are not a good option for every circumstance. Here are some of the drawbacks of personal loans:
A personal loan is likely the best choice for borrowers who aren't certain of their ability to pay off their debt within a year, or who may be tempted to simply make the minimum payments on a balance transfer credit card. Personal loans can also be excellent ways to get a quick boost to your credit score, as it's a more favorable form of debt than credit cards in the eyes of the FICO scoring formula.
And finally, personal loans can be the best choice if you have more than just credit card debt to consolidate or pay off. For example, if you have:
You can obtain a $25,000 personal loan to take care of all of these things at once, as loans in this amount are offered by virtually every personal lender on our radar. It might be tough for the average person to find a balance transfer credit card with a $25,000 limit.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
Transferring a balance to another credit card can be a quick and easy way to pay off debt, as the process generally involves filling out a credit card application and some information about your existing credit card accounts. There are some excellent 0% intro APR balance transfer offers on the market right now, and you can read our updated list of the best balance transfer credit card offers to see what's currently available.
Like personal loans, there may be certain circumstances that make a balance transfer an ideal fit:
Also like personal loans, balance transfers do come with their own set of drawbacks:
It makes the most sense to take advantage of a balance transfer offer if your debt is relatively small and you're confident that you can pay it off in its entirety before the 0% intro APR period ends. Sure, you can theoretically obtain another balance transfer at that point, but it's not a smart idea to count on it.
Plus, balance transfers can be great if you want the flexibility to make new purchases, as many credit cards with balance transfer offers also have excellent 0% intro APR periods for new purchases.
We have a free balance transfer calculator to aid you in your decision.
It's certainly possible to use both methods of debt consolidation to your advantage. For example, let's say that you have $20,000 in high-interest credit card debt, but you know that there's no way you can pay it off during a 0% intro APR window with a balance transfer credit card.
You could choose to transfer a manageable amount of the debt onto a balance transfer credit card with a 0% intro APR, and then obtain a personal loan for the rest. This way, you're avoiding interest on as much of your debt as possible, but without the risk of a high credit card interest rate kicking in on the rest before you can pay it off.
The point is that while both methods have pros and cons, you don't necessarily have to choose one or the other. The best solution to your debt management could be some combination of the two.
Here are some other questions we've answered:
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
Balance transfers aren't necessarily bad for your credit when used correctly. A balance transfer can help you pay off your debt quicker, which can help increase your credit score over time. However, a balance transfer could potentially harm your credit score initially, especially if your balance transfer results in the credit card being nearly maxed out.
Personal loans can be a good option for transferring credit card balances, especially if you need a longer time horizon to pay it back than the card's 0% intro APR period.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 02/06/2024 and are subject to change without notice. The average of SoFi Personal Loans funded in 2022 was around $30K. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0%-7%, which will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: To be eligible to potentially receive an additional (0.25%) interest rate reduction for setting up direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A. or eligible cash management account offered by SoFi Securities, LLC (“Direct Deposit Account”), you must have an open Direct Deposit Account within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled payroll direct deposits of at least $1,000/month to a Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion. This discount will be lost during periods in which SoFi determines you have turned off direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to receive a Loan.
Impact to credit score: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Citi Personal Loan disclaimer:
**Rates as of 10-06-2023 . Your APR may be as low as 10.49% or as high as 19.49% for the term of your loan. The lowest rate quoted assumes excellent credit, and a loan term of 36 months or shorter. Otherwise, a higher rate will apply. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.