The Balance Transfer Card or the Personal Loan: What Is Right for You?
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The Balance Transfer Card or the Personal Loan: What Is the Best for You?
There are two methods to consolidate credit: a account that allows you to transfer balances and personal loan.
Updated on January 31st 2023.
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Table of Contents
Table of Contents
Balance transfer credit cards and are two common consolidation strategies that can reduce your interest you owe and assist you in paying off debt more quickly and quickly and easily.
However, how do you decide between a balance transfer credit card or personal loan? Ask the following questions to figure out how to best pay off your outstanding debts.
What is the best way to decide between a balance transfer card and personal loan
If you are deciding between a balance transfer credit card and a personal loan for debt consolidation, there are four main questions to consider.
1. What kind of debt do I have?
The type of debt you’re in may help you determine which product is best suited for you.
For instance, it works by letting you move high-interest credit card debts to this new card, but you’re not able to transfer other debts.
A is more flexible. You can use it to pay off various types of unsecure debts, such as credit cards, medical bills, payday loans and existing personal loans.
2. How much debt do you owe?
The amount due as well as the time it takes to pay it back — is another important consideration.
Balance transfer cards is likely to have the same credit limit as an loan, so it’s best for smaller debts. A balance transfer card comes with the benefit of a promotional APR of zero percent for a specific time frame, typically from 15 to 21 months. You should ensure you are able to repay your debt in that initial period when you’ll be charged no charges for interest.
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A debt consolidation loan comes with a longer repayment period, usually between one and seven years, and many lenders provide large loan amount, often up to $50,000. Though you won’t get as much savings on interest, a consolidation loan is typically an ideal choice for those with higher debt who need more time to pay it off.
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Nerdy Tip
If you’re not certain the amount of debt you’ve got then you can input your current balances, interest rates and the monthly installments to get the full picture.
3. What product are you eligible for?
The balance transfer card and the debt consolidation loans have different qualification criteria however both consider your overall credit, so before you apply.
Borrowers with good to excellent credit (690 credit score or more) could be eligible for both a balance transfer credit card as well as the debt consolidation loan. If you have fair or bad credit (689 credit score or lower), you may only be eligible for a loan. Consolidation loans are available to borrowers across the credit spectrum.
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Depending on the lenderyou choose, you might be able to be pre-qualified for the loan that means you can check potential loan terms without hurting your score on credit.
Want to consolidate your debt? See if you pre-qualify for the consolidating debt loan.
Simply answer a few questions to get personalized results from our lending partners.
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4. What are the costs?
Also, consider the cost when consolidating the products. Although balance transfer cards come with the option of a promotional 0% APR period, many charge fees for transfer of balances, which is typically between 3% and 5percent of the amount that is transferred.
Consolidation loans are priced between 6% and the APR of 36%, contingent on your credit profile and the desired loan amount and repayment term. Some lenders will also charge an origination fee that will cover the cost of processing your loan. It is an upfront cost which can be as low as 1% to 10 percent from the loan amount.
Keep in mind that, despite these costs the balance transfer loan or consolidation loan may have a lower APR than the debt you currently have which means you could save cash.
Balance transfer is different from. personal loan
Card for balance transfer
Personal loan
Kind of debt
Best for paying off credit card debts in one go.
The best option for paying off credit card debts, or other types of debts that are not unsecured.
The amount of debt
Ideal for debts with smaller amounts which can be paid within the promotional period, usually 15 to 21 months.
The best option for bigger debts which could take anywhere from one to seven years to be paid off.
The qualifications criteria
Loans are available to borrowers with good to good credit (690 credit score or better).
The loan is available to borrowers across the credit spectrum This includes those with bad or fair credit (689 score or lower).
The ability to pre-qualify with certain lenders.
Costs
Includes zero-interest promotional period.
It is possible to be charged 3% to 5% balance transfer fee.
Includes fixed monthly interest.
The company may charge 1%- 10% of the origination fee.
Consolidating your debt successfully
Consolidating can be an effective method of gaining control of your financial burden. But it won’t address spending habits that led to obtaining a balance transfer card or the debt consolidating loan.
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Establishing a can help you keep expenses in check. The budget should contain debt repayments and also money for things you want to purchase.
It’s even more crucial to make sure you don’t accumulate large balances on the credit cards that you’ve paid off. A consolidation loan as well as a balance transfer credit isn’t useful if it results in breaking your budget and pushing you into further debt.
The author’s bio: Jackie Veling covers personal loans for NerdWallet.
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