Personal Loans VS Credit Card Balance Transfers:
Which is Right for You?
Are you facing an uphill battle against debt that you just can’t seem to win? Being overwhelmed with debt can impact many areas of your life and can ultimately make it difficult to secure a new vehicle or home loan. While you may be considering a credit card balance transfer to take advantage of a 0% APR introductory offer or new low-rate balance transfer promotion, have you thought about how a personal loan could help you eliminate your debt? While both offer you the ability to lower your rate and ultimately pay down your balance, do you know which one is right for you and your finances?
Before choosing between a personal loan and a credit card balance transfer, analyze your financial circumstances and the amount of debt you’re facing, how much of a monthly payment you are able to make, and how it ultimately could affect your credit score. Keep in mind, both a balance transfer to a new card and a personal loan are considered new credit applications which may negatively impact your credit score in the short term. However, paying down your debt will positively impact your credit score in the long term.
Having a no-interest or low-interest rate option is far and away one of the biggest reasons to transfer multiple debt balances onto one credit card. While a low interest rate offer can be quite enticing, do you know what that interest rate goes up to after the introductory or promotional period ends? If you’re making minimum monthly payments or if you don’t pay off that existing debt after the introductory or promotional period ends, you could find yourself paying more for a longer period of time.
Advantages of Credit Card Balance Transfer
- 0% introductory offers or low-rate balance transfer promotions
- Combine debt from multiple credit cards into one card
- Flexibility in your monthly payment amount can help your budget
- If using an existing card, does not require a new loan application
Disadvantages of Credit Card Balance Transfer
- Higher interest rates once promo period has ended
- Consistently making only the minimum monthly payment means it will prolong the amount of time it takes to pay off your debt
- Balance transfer fee may apply
- A large balance in relation to your credit limit may negatively impact your credit score
Personal loans are becoming one of the fastest-growing types of loans in the industry. Our team of experts can provide a free financial review to show you how a personal loan could be the best way to consolidate your current debt. These loans are typically paid in monthly installments between one and five years. Personal loans are great because they provide you with a clear end date as to when your debt will be paid off.
Advantages of Personal Loans
- Lower rates than credit cards
- Combine multiple lines of credit into one easy payment
- Monthly payment amount is tied to a term, which means you may pay off the debt quicker
Disadvantages of Personal Loans
- In the short-term, interest rate may be higher than a balance transfer or introductory offer
- No flexibility month-to-month with your payment amount
- Temptation to continue to use credit cards with available credit limits
There’s no guarantee that a credit card balance transfer or a personal loan will cover your current debts. However, even if you can’t pay off or transfer all of your current debt with one move, start with eliminating the debt with the highest interest rate. Regardless of the debt consolidation option you choose, combining multiple lines of credit into one easy payment can help increase your credit score. It can also help relieve the stress of multiple payment dates, the worries of a damaged credit score thanks to late payments and more.