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
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
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
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.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
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Take advantage of a long intro APR period
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
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.
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Pay off debt faster
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
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
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
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.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Bottom line
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.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
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