9 Times a Balance Transfer Credit Card Makes More Sense Than a Loan

CREDIT CARDS - BALANCE TRANSFER CREDIT CARDS
Swap your high loan interest for zero-percent balance transfer magic.
Updated May 8, 2024
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The primary reason you might choose a balance transfer credit card over a loan is to avoid paying interest during a promotional period completely. But the benefits don’t stop there.

Let’s explore the different ways it makes sense to use a balance transfer card instead of a loan.

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Avoid interest

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Many balance transfer credit cards have 0% introductory APR offers. You can transfer existing debt to your new card without paying interest on the transferred balance for a set period of time.

In contrast, personal loans typically charge interest as you make payments. Depending on the situation, that could mean paying more to get out of debt because some of your payments are going toward interest.

If you want a card that has intro APR offers, you can also consider low-interest credit cards.

Establish revolving credit

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Once you pay off your loan, that’s generally the end of your loan interaction.

With a credit card, you can continue using your available credit and paying off your balances as long as your account is active and in good standing.

That could provide the long-term benefit of always having credit available, whether as an emergency funding option or an everyday purchasing method.

In addition, continuing to use your credit card responsibly could help you build your credit history and improve your credit score.

A loan can help your credit history while you’re making payments, but you could actually see a drop in your credit score after paying off a loan.

Fewer fees

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It’s common for balance transfer credit cards to have balance transfer fees, which often equate to 3% to 5% of the balance.

You might have to pay an origination fee of 1% to 8% for personal loans. On top of that, your loan might have a prepayment penalty for paying off your loan early.

Overall, the better option comes down to the fees involved in each individual situation. But a good rule of thumb is to pay fewer fees in general.

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Take advantage of a long intro APR period

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Personal loans generally have long repayment periods, sometimes a few years or more. You generally won’t find intro APR periods on balance transfer cards that last two years or more.

However, there are some offers out there that get close to the two-year mark, giving you more time to pay down as much debt as possible.

If you plan to use a balance transfer card with a 0% intro APR offer to pay off existing debt, make a plan to completely pay off your balance before the promotional period ends.

Otherwise, you could be on the hook for huge interest charges when your credit card’s APR returns to normal.

Utilize card perks and benefits

insta_photos/Adobe consumer holding credit card

Personal loans don’t tend to provide additional benefits on top of the money being borrowed. A credit card, however, could have plenty of built-in benefits apart from an intro APR offer.

For example, you might be able to take advantage of purchase, extended warranty, and/or cell phone protection by simply paying for certain things with your card.

Or you could have a card with travel coverage, including rental car insurance or lost luggage reimbursement.

It’s worth comparing cards to see what additional benefits they might have, especially if they have similar balance transfer offers.

Pay off debt faster

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In some cases, you could use a balance transfer card to pay off your debt quicker.

That’s because if you don’t have to pay interest for a certain amount of time, thanks to an intro APR offer, you could reasonably expect to have more funds available to put toward your debt.

With a debt consolidation loan, you typically pay interest on every payment. Since some of your money is going toward interest, that’s less money overall to put toward your actual debt.

Repay small amounts of debt

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A balance transfer credit card is generally better than a loan if you have a relatively small amount of debt to pay off. For example, you want to pay off $20,000 or less in existing debt rather than a balance of $100,000.

A balance transfer card might be better in this aspect because you could qualify for a 0% intro APR offer and completely avoid interest.

Also, the average person likely wouldn’t have a huge amount of credit extended to them on one credit card, and your balance transfer limit is based on how much available credit you have.

Make flexible payments

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Most loans require fixed payments with interest. With a balance transfer credit card, you have the flexibility to pay as little or as much as you want, depending on your financial situation.

For example, you might not have as much income one month, so you can make a smaller payment. You can then pay more in an upcoming month when you have more money coming in.

Having a 0% intro APR offer doesn’t mean you should completely avoid making payments toward your credit card balance. You typically still have to make a minimum payment or you might incur fees, voiding your intro APR offer.

A high balance could also increase your credit utilization and lower your credit score.

Earn credit card rewards

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Some balance transfer cards also earn rewards on purchases. That means you could earn cash back or travel rewards for your everyday expenses.

This is more of a side note to paying off your debt with a balance transfer offer, but it’s still something to consider.

After all, earning rewards on purchases you’re already making is an overall net benefit. They aren’t hurting you financially and could help you save money in other ways.

Depending on the card, you could later redeem your rewards for statement credits, bank deposits, flights, hotel stays, and more.

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Bottom line

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Both balance transfer credit cards and debt consolidation loans could help you pay off existing debt.

But balance transfer cards are better in many ways, especially since you can take advantage of 0% intro APR offers that help you avoid interest for a certain period of time.

If you’re in debt, remember to carefully compare the different types of repayment options and products you have at your disposal.

Making the right choice now could help you get ahead financially for years to come.

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Author Details

Ben Walker, CEPF, CFEI® Ben Walker, CEPF, CFEI®, is credit cards specialist. For over a decade, he's leveraged credit card points and miles to travel the world. His expertise extends to other areas of personal finance — including loans, insurance, investing, and real estate — and you can find his insights on The Washington Post, Debt.com, Yahoo! Finance, and Fox Business.

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