A personal loan or balance transfer card usually costs less than carrying credit card balances, but which one saves you money depends on your credit score, how much you owe, and how fast you can pay it back
The two main routes are a personal loan (you borrow a fixed amount, repay it in monthly installments over a set term) and a balance transfer credit card (you move your existing balances to a new card, usually with a lower interest rate for a limited time). A personal loan locks in a fixed rate and payment, which makes the math predictable. A balance transfer card offers a period—often 6 to 21 months—with no interest or a very low rate, but after that period ends, the rate jumps to the card's standard rate.
Which one costs less depends on your situation. If you can pay off the full balance during the interest-free period on a balance transfer card, that card wins. If you cannot, a personal loan with a lower overall interest rate usually costs less over time, even though you pay interest from day one. Your credit score matters: a higher score gets you better rates on both, but the gap between them narrows as your score drops.
Key Takeaways
- A personal loan offers a fixed interest rate and monthly payment, making the total cost predictable; a balance transfer card offers months with no interest but a higher rate afterward.
- Balance transfer cards work best if you can pay off the full balance before the promotional period ends; personal loans work best if you need a longer repayment timeline.
- Your credit score determines which rates you will receive; scores above 700 typically unlock the best offers on both products.
- Personal loans charge interest from the first payment; balance transfer cards charge no interest during the promotional period but may charge a one-time transfer fee of 3 to 5 percent.
- The math changes if you plan to use the credit card again after paying off the balance—a personal loan removes that temptation entirely.
Personal loans: fixed cost, fixed timeline
A personal loan is unsecured debt you repay in fixed monthly installments over a set period, usually 2 to 7 years. You borrow the full amount upfront, and the lender charges you interest based on your credit score, income, and the loan term. The interest rate does not change—you know exactly what you will pay each month and when the loan ends.
The advantage is certainty. You cannot accidentally run up the balance again because the money is not sitting on a credit card. The disadvantage is that you pay interest from the first payment, even if you could pay it off faster. A personal loan makes sense if you need 3 or more years to repay, or if you want to remove the temptation to keep using the credit card.
Personal loan rates vary widely by lender and credit score. Banks, credit unions, and online lenders all offer them. Credit unions often charge less than banks or online lenders, but you must be a member. Online lenders typically fund faster—sometimes within 1 to 3 business days—but charge higher rates than banks or credit unions. Banks are slower but may offer better rates if you already bank there.
Balance transfer cards: zero interest, but only for a time
A balance transfer card is a new credit card that lets you move your existing balances from other cards to this one, usually at 0% interest for a promotional period. That period typically lasts 6 to 21 months, depending on the card and the offer. After the promotional period ends, the card's regular interest rate kicks in—often 15% to 25%.
Most balance transfer cards charge a one-time fee of 3 to 5 percent of the amount you transfer. If you transfer $10,000, you might pay $300 to $500 upfront. That fee is usually added to your balance, so you owe it along with the original debt. The math only works if the interest you save during the promotional period exceeds the transfer fee.
A balance transfer card works best if you can pay off the entire balance before the promotional period ends. If you cannot, you will owe interest at the card's regular rate on whatever remains, which often exceeds what you would pay with a personal loan. Balance transfer cards also require discipline: if you transfer a balance and then use the card again, you now have two debts on one card, and payments go to the lower-interest balance first.
Comparing the actual cost: personal loan versus balance transfer
| Factor | Personal Loan | Balance Transfer Card |
|---|---|---|
| Interest rate | Fixed from day one; varies by credit score and lender | 0% for promotional period; standard rate (15–25%) after |
| Upfront cost | None (some lenders charge origination fees of 1–6%) | Transfer fee of 3–5% of amount transferred |
| Monthly payment | Fixed; you know the exact amount and end date | Flexible; you choose how much to pay each month |
| Best for | Repaying over 3+ years; removing temptation to re-borrow | Paying off the full balance within 6–21 months |
| Risk if you cannot pay as planned | You still owe at the fixed rate; no surprise rate increase | Promotional rate ends; remaining balance accrues interest at 15–25% |
To compare the two, calculate the total cost of each option for your specific situation. For a personal loan, multiply your monthly payment by the number of months. For a balance transfer card, add the transfer fee to your balance, then calculate how much interest you would owe if you do not pay it off during the promotional period.
Example: You owe $8,000 on credit cards at 18% interest. A personal loan at 10% over 3 years costs about $2,450 in interest. A balance transfer card with a 4% fee ($320) and a 12-month promotional period costs $320 upfront. If you pay $667 per month, you clear the balance before the rate jumps. If you can only pay $500 per month, you will owe $3,000 when the promotional period ends, and that $3,000 will accrue interest at the card's standard rate.
Credit score and the rates you will actually receive
Your credit score determines which rates lenders will offer you. Scores above 740 typically unlock the best personal loan rates (5% to 8%) and the most generous balance transfer offers (0% for 18+ months, lower transfer fees). Scores between 670 and 739 receive mid-range rates (8% to 12% on personal loans, 0% for 12 to 18 months on balance transfer cards). Scores below 670 face higher rates on both products, and some lenders will not offer a personal loan at all.
If your score is below 670, a balance transfer card may not be an option because card issuers often require a score of 650 or higher, and the best offers go to higher scores. A personal loan from a credit union or online lender may be your only choice, though the interest rate will be higher. In that case, focus on paying down the debt as fast as possible rather than stretching the repayment over many years.
When a personal loan is the better choice
Choose a personal loan if you need more than 18 months to repay, if your credit score is below 670, or if you want to remove the credit card entirely from your budget. A personal loan also makes sense if you have multiple credit cards with high balances—consolidating them into one loan simplifies your payments and removes the temptation to keep using the cards.
A personal loan is also better if you have unpredictable income or expenses. With a personal loan, your payment is fixed, so you know exactly what you owe each month. With a balance transfer card, you have flexibility in how much you pay, but that flexibility can lead to paying less than you intended and owing interest at the standard rate when the promotional period ends.
When a balance transfer card is the better choice
Choose a balance transfer card if you can pay off the entire balance within the promotional period and your credit score is 670 or higher. The math is straightforward: if you can eliminate the debt interest-free, you save money compared to a personal loan, even after paying the transfer fee.
A balance transfer card also makes sense if you want to preserve your credit mix. Personal loans and credit cards are different types of credit, and lenders like to see both. Closing a credit card after paying it off can hurt your credit score slightly, but moving the balance to a new card keeps your credit card accounts active. However, this advantage is small compared to the cost difference, so do not let it override the math.
Steps to compare offers and choose the right product
Start by calculating how much you owe and how much you can pay each month. Divide the total debt by your monthly payment to estimate how long repayment will take. If it is 18 months or less, a balance transfer card may work. If it is longer, a personal loan is usually cheaper.
Next, check your credit score. You can get a free score from your bank, credit card issuer, or a free service like Credit Karma or AnnualCreditReport.com. Use that score to estimate which rates you will receive. Most lenders show you an estimated rate before you formally explore, and that estimate does not hurt your credit score.
For personal loans, compare offers from at least three lenders: your bank, a credit union (if you are a member), and one or two online lenders. For balance transfer cards, check the current offers from major card issuers—Chase, American Express, Citi, and Capital One all offer balance transfer cards. Compare the promotional period length, the transfer fee, and the standard rate that applies after the promotional period ends.
Calculate the total cost of each option using the same repayment timeline. If you plan to pay off the debt in 12 months, calculate what a personal loan would cost over 12 months and what a balance transfer card would cost if you paid it off in 12 months. Do not compare a 12-month personal loan to a 36-month personal loan—use the same timeline for both products.
Frequently Asked Questions
Will taking out a personal loan hurt my credit score?
A hard inquiry from the lender will lower your score by a few points temporarily. Taking out new debt also lowers your score initially. However, a personal loan improves your credit mix and, as you make on-time payments, your score will recover and eventually improve. The short-term dip is worth it if the loan saves you money on interest.
Can I use a personal loan to pay off a balance transfer card?
Yes. If you transfer a balance to a card but realize you cannot pay it off during the promotional period, you can take out a personal loan to pay off the card in full. This locks in a fixed rate before the card's standard rate kicks in. Just make sure the personal loan rate is lower than the card's standard rate.
What happens if I miss a payment on a personal loan or balance transfer card?
On a personal loan, a missed payment is reported to credit bureaus after 30 days and damages your credit score. On a balance transfer card, a missed payment also hurts your score and may end the promotional 0% rate early, causing interest to accrue on the full balance when ready. Both are serious, so set up automatic payments if possible.
Can I explore for a balance transfer card if I have bad credit?
Most balance transfer cards require a credit score of 650 or higher, and the best offers go to scores above 700. If your score is below 650, you will not be approved. A personal loan from a credit union or online lender may be your only option, though the interest rate will be higher than what someone with good credit would receive.
Should I close my old credit cards after paying them off with a personal loan?
Closing old cards can lower your credit score because it reduces your available credit and shortens your credit history. Keep the cards open but unused. This preserves your credit mix and keeps your available credit high, which helps your score over time.