Apr 04, 2025
If you're looking to simplify your finances and reduce interest costs, a personal loan or balance transfer could help. But which one is right for you?
A balance transfer moves existing credit card debt to a new credit card, often with a low introductory rate for a set period. A personal loan provides a lump sum with a fixed rate and structured payments.
The best choice depends on your debt amount, repayment timeline, and financial goals. Read on to compare both options and find the right fit for you.
A balance transfer is the act of moving the amount you owe from one or more accounts to a different one. This is commonly done for credit cards when borrowers move many credit card debts onto one card.
To do a balance transfer, you move debt from one credit card, typically with a higher interest rate, to another credit card that offers a lower interest rate. Balance transfers are often used to help you save money on interest and could let you pay off your debt sooner.
Balance transfers might work well for smaller debts you can pay off quickly, but you should make sure it is the best choice for your finances. There are many parts of a balance transfer, so it’s important to look at the details of each one.
Borrowers often use a balance transfer to move the amount they've borrowed on one or more credit cards to another credit card account with a lower interest rate or better repayment terms. For example, you might move high-interest credit card debt to a card with a 0% introductory annual percentage rate (APR), or to a personal loan with a fixed repayment schedule.
If you have multiple accounts, a balance transfer might also make it easier to manage what you owe by streamlining your payments into one account.
A balance transfer may be a good way to consolidate your debt if you can pay off the balance on the new card before the promotional interest rate expires. If you don't pay the balance in full before the promotional rate ends, the APR will change to the regular rate set in the terms, which might be higher than the rate you are currently paying. That might put you back where you started: with high-interest debt you may struggle to pay off.
One way to determine if a balance transfer might work for you is to figure out how much you can to pay each month. Then divide your total debt by that monthly payment amount. If you can afford to pay the balance in 12 payments, transferring to a card offering a low APR for a year might be right for you, as long as you don’t keep borrowing from the credit card account.
By transferring your revolving balances to a fixed-rate, personal installment loan, you can choose the number of months you want to pay off the debt in. At Discover® Personal Loans, for example, you can choose from multiple repayment options to fit your budget—36, 48, 60, 72, or 84 months.
As you research balance transfers, you may encounter fees that are added to your balance and can quickly add up. Remember, you’ll typically have to pay a fee for each credit card balance you transfer. These fees might range from 3%–5% of the transfer amount. You should also check if the new credit card has an annual fee, as that might significantly offset the money you’re hoping to save on interest.
You should also make sure the credit limit on your new credit card is high enough to handle the balances you want to transfer and any fees the bank might charge for the balance transfer. For example, $20,000 worth of debt might be too much to transfer to a new card. Some cards might also restrict the amount you transfer to 75% of the credit limit available to you.
A personal loan is a type of installment loan that is paid in a lump sum to the borrower and is then repaid in one set regular monthly payment over the loan repayment term.
To start a personal loan, you need to figure out what loan amount is needed to cover your debt and determine how many months you want to pay it off. Once you have that information you can choose a lender and apply for a personal loan. If approved, your lender may be able to pay all or some of your other creditors directly. Or, you may receive the loan as a lump-sum payment. Explore our detailed guide for more answers to other common personal loan questions.
One of the main uses for personal loans is debt consolidation. Depending on your financial situation, a personal loan could be a good choice. They have several features, outlined below, that you’ll want to compare against a balance transfer to determine which is your best choice for managing higher-interest debt.
Personal loans do not typically offer 0% introductory interest rates. However, you usually do get a fixed APR though, so your interest rate and monthly payment will not change over the life of the loan. Because you choose the repayment term and monthly payment that fits your budget, you can enjoy peace of mind knowing exactly when you will have the loan paid off.
Personal loans may work well for higher-interest credit card consolidation. But it's still a good idea to research and compare lenders to help lower your costs. Some lenders charge origination or other fees, for example, while others, like Discover Personal Loans, don’t charge origination fees, closing costs, or prepayment penalties.
Because many lenders offer loans only in larger amounts, a personal loan might be an ideal way to consolidate larger debts that will take you more than a year to pay down. With a Discover personal loan, you can apply for any loan amount from $2,500 to $40,000. You can also calculate your monthly payment to ensure that it fits into your budget.
Both balance transfers and personal loans might affect your credit score. Either one could be beneficial if they help you repay your debt quickly. But, opening new credit cards and transferring balances to them, however, may also impact your credit score by reducing the average age of your revolving credit. In either case, applying for a new credit card or personal loan will trigger a hard inquiry, which might cause your credit score to dip temporarily.
Personal loans might help your credit health, however, by transferring some of your revolving debt to an installment loan. Revolving loans, such as credit cards, are considered one category in your credit report. Installment accounts, including personal loans, car loans, student loans, and mortgages, are grouped in another category. Showing an ability to balance payments among different types of loans may help prove that that you can handle your debt responsibly.
The answer depends on which one may do more to help you reach your financial goals. Because both personal loans and credit cards are unsecured, you don’t need to put up any collateral to get your money.
For lower debt balances that you can comfortably pay off in one to two years, a balance transfer might be a smart solution. If you get an introductory 0% APR offer, you might save on interest in the short term.
For higher debt balances, a personal loan might be the better option. A fixed interest rate, one set regular monthly payment, and flexible loan terms may help you pay down debt and still allow you to save. In fact, 85% of surveyed customers said they saved money by consolidating debt with a Discover personal loan, and nearly half said they saved an average of $428 per month. For debt consolidation, even with a lower interest rate or lower monthly payments, paying debt over a longer period of time may result in the payment of more in interest.*
If you are thinking about consolidating debt and looking to save money, see what you might save in interest when you consolidate higher-interest debt with a loan from Discover Personal Loans.
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*ABOUT SURVEY
All figures are from an online customer survey conducted in September 2024. A total of 736 Discover personal loan customers were interviewed about their most recent Discover personal loan with 546 of them using the funds to consolidate debt. All results @ a 95% confidence level. Respondents opened their personal loan between January and July 2024 for the purpose of consolidating debt. Agree includes respondents who ‘Somewhat Agree’ and ‘Strongly Agree’.
