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Debt Consolidation Loan v. Balance Transfer

July 01, 2021

Young woman looking at banking card while sitting in front of laptop
We're all looking for the least expensive way to pay down high interest credit card debt. There are several options to consider and if you have a decent credit score you'll have even more options available to you. Two of the most popular and effective methods are balance transfer credit cards and debt consolidation loans. Both can help you pay down debt and save money at the same time.

What are balance transfer credit cards? How does debt consolidation work? We're glad you asked! Balance transfer credit cards allow you to transfer your debt from other sources and pay very low - in some cases 0% - interest rates for a certain time period. Debt consolidation loans also provide significantly lower interest rates, and that rate lasts for the life of the loan.

  Debt Consolidation Loans Balance Transfer Credit Cards
Best For Large debts that will be paid off over time Small debts that can be paid off quickly
Typical Terms Fixed monthly payments for the life of the loan Pay the outstanding amount before the introductory period ends to avoid a spike in the interest rate
Credit Score Requirements Good preferred; bad-credit approvals available at some institutions Good to excellent
Fees Origination fees; up to 8% of the loan total Balance Transfer fees; 3% - 5% of the transferred amount

Balance Transfer Credit Cards

Balance transfer credit cards typically charge 0% APR for a limited amount of time - the card's introductory period. That time period can last anywhere between 10 and 20 months depending on the type of card and the institution where it's obtained. If you can pay your loan off within that timeframe, a balance transfer card can be a great way to save all of the interest money you would have had to pay otherwise.

Balance transfer cards need to be handled responsibly though. Once the introductory period ends, interest rates hike back up - usually even higher than a standard credit card. If you keep using the balance transfer card to make purchases and your total debt amount doesn't come down, you could find yourself stuck in a worse situation than before.
  • 0% APR means every dollar you're able to pay goes directly toward the principle amount of your debt.
  • Certain balance transfer credit cards come with rewards programs, consumer protection guarantees, and other similar benefits.
  • Most balance transfer cards do not require an annual fee.
  • With an introductory period, the good times don't last forever - interest rates spike when time is up.
  • All remaining debt after the intro period will accrue debt at the regular variable (and usually very high) APR.
  • Your balance goes up 3% - 5% from the very beginning due to fees.
  • It's recommended not to use this card for purchases or you'll just keep accruing new debt while paying down old debt. Making headway can be very difficult that way.
Balance transfer credit cards are available at most institutions. If you go to apply for one, checking on your credit reports, credit score, and other required personal information can save you lots of time and effort. Do some research online for the best balance transfer credit cards so that you go in with an idea of what you'd like, and a financial professional like those here at Education First FCU can help you figure out which one is right for you.

Debt Consolidation

A debt consolidation loan is basically an unsecured personal loan. Intended to help you pay down and ultimately eliminate debt, debt consolidation loans offer fixed interest rates, monthly payments, and repayment timelines. You'll be able to pay down debt with no surprises, and there will be a set date on which you will officially be debt free (*cue Dave Ramsey's debt free scream*).

For many people, using a personal loan to pay off debt is incredibly helpful. Unlike balance transfer credit cards, you can pay off debts from multiple accounts at the same time. The other institutions are paid and, as far as they are concerned, those debts are settled. All you have to worry about now is making your one monthly payment toward your debt consolidation loan. The lower interest rate on the debt consolidation loan over time will help save you even more money on interest.

Keep in mind - debt consolidation doesn't magically make your debt any smaller. It just brings it all under one lower-interest, easier-to-manage roof. You'll still need to be diligent about making payments on time and in full to make the kind of progress you want.
  • Fixed monthly payments and interest rates allow you to confidently budget for other expenses with no surprises.
  • Competitive interest rates last for the life of the loan.
  • Terms can allow for repayment over many years, giving you more time to pay off your debt.
  • Origination fees are required on some personal loans.
  • 0% APR isn't possible with a debt consolidation loan, but rates are lower than with regular credit cards.


When it comes to high-interest debt, a case can be made for both a debt consolidation loan and a balance transfer credit card. When making your decision, it's important consider your own situation and goals.
Debt consolidation loans are best for those who need to pay down debt slowly - perhaps over 5 - 10 years or more. They also work for those who prefer the simplicity and security of fixed interest rates and monthly payment amounts. If you're a shopaholic and credit cards tempt you to continue to accrue debt, debt consolidation is probably best for you, too.

Balance transfer credit cards work for people who have a small amount of debt that can be completely paid off in a short amount of time. The whole purpose of a balance transfer is to take advantage of the 0% APR period, so if you can pay off the debt completely in the right amount of time, this is best for you. Be cautious about how you use the credit card though - since you can still make purchases with it, you'll need to be disciplined to make sure your debt isn't building up as fast as it's paying down.
Education First FCU's expert staff is available and ready to help you figure out what you need and how to meet your debt payoff goals. We want to help you save money and bank smarter. Contact us today to see how we can help!