Balance Transfer Card or Personal Loan: What is best for You?
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Balance Transfer Card or Personal loan: Which One Is best for You?
Find two options to consolidate debt: a balance transfer credit card and a personal loan.
Updated on January 31st, 2023
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Table of Contents
Table of Contents
Balance transfer credit cards and are two of the most popular consolidation strategies that could reduce amounts of interest you owe and help you pay off debt more quickly and easily.
But how do you choose between a balance transfer credit card or personal loan? Answer these questions to find out how to best pay off your obligations.
Which is better to use a balance transfer card and personal loan
If you are deciding between the credit card that allows balance transfer and a personal loan for debt consolidation There are four primary questions you should think about.
1. What type of debt do you have?
The kind of debt you have may aid you in determining which loan is best suited for you.
It works, for instance, by letting you move high-interest credit card debt to this new card, but you can’t transfer other debts.
A is more flexible. You can use it to pay off a variety of debts that are not secured, such as medical bills, credit cards, payday loans and existing personal loans.
2. How much debt do you have?
The amount of money you owe — and the time it takes to pay it off — is another important consideration.
The balance transfer credit card may have the same credit limit as the typical loan and is therefore best to use it for debts with lower amounts. A balance transfer card is available with a promotional APR of 0 percent for a specific time frame, typically between 15 and 21 months. You should ensure you are able to pay off your debt within the first period, during which you’ll not be charged any interest.
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An unsecured debt consolidating loan has longer repayment terms, usually between one and seven years. Some lenders offer high loan amounts, sometimes as high as up to $50,000. Although you may not get as much savings on interest, a debt consolidation loan is typically a better fit for people with more debt and who require more time to pay off the debt.
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Nerdy Tip
If you’re not sure the amount of debt you’ve got it is possible to input the current amount of debt, your interest rate and the monthly installments to get the full picture.
3. What products are you eligible for?
The balance transfer card and the debt consolidation loans have different qualifications, though both look at your overall credit, so prior to applying, you must have a good credit score.
The borrower with excellent or good credit (690 credit score or higher) are likely to be eligible for both a balance transfer card and the debt consolidation loan. If you have poor or fair credit (689 credit score or less) it is possible that you will only be able to qualify for a loan. Consolidation loans are offered to borrowers across the credit spectrum.
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Based on the lender, you may be able to be pre-qualified for the loan, which means you can check potential loan conditions without harming the credit rating.
Want to consolidate your debt? Find out if you qualify for a credit consolidation loan.
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The amount of the loan
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4. What are the costs?
Also, consider the cost of consolidating each product. While balance transfer cards are offered with a promotional 0% APR period, some charge a balance transfer fee, which is typically 3% to five percent of the amount that is transferred.
The debt consolidation loans cost between 6% and three percent APR depending on your credit profile as well as the loan amount and repayment term. Some lenders also charge an origination fee which is used to pay for processing your loan. It is an upfront cost that can range from 1% to 10% on the loan amount.
Be aware that, even with these charges that a balance transfer credit card , or debt consolidation loan might have a lower APR than your current debts which means you could save cash.
Balance transfer is different from. personal loan
Balance transfer card
Personal loan
Kind of debt
The best option is to pay off credit card debts only.
The best option method to pay off credit card debt or other types of debt that are not secured.
Amount of debt
The best option for debts of a smaller size which can be paid within the promotional period, usually 15 to 21 months.
Best for larger debts that could take between one and seven years to pay off.
The qualifications criteria
Available to borrowers with good to good credit (690 credit score or higher).
Loans are available to all borrowers on the credit spectrum, including those with bad or fair credit (689 score or lower).
Possibility to pre-qualify for certain lenders.
Costs
Includes zero-interest promotional period.
It is possible to charge between 3% and 5 percent balance transfer fee.
Includes fixed monthly interest.
May charge 1% to 10% of the origination fee.
Consolidating your debt successfully
Consolidating can be an effective way to get a handle on your debt. But it won’t address your spending habits that lead to obtaining the balance transfer card or debt consolidation loan.
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The creation of a budget can help you keep spending in line; the budget should include debt payments 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 you’ve paid off. A consolidating loan (or balance transfer) card won’t be beneficial if it winds up damaging your budget and pushing you into further debt.
Author bio Jackie Veling covers personal loans for NerdWallet.
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