Balance Transfer Card vs Personal Loan: Which Is Best for You? | NerdWallet

Summary

This video compares balance transfer credit cards and personal loans as debt consolidation strategies. It highlights how balance transfer cards are ideal for smaller credit card debts, offering 0% APR for 15-21 months, while personal loans are better for larger debts, providing fixed payments over 1-7 years. The video outlines key considerations when choosing between the two, such as debt type, amount, and qualification requirements, emphasizing the importance of managing spending habits. Viewers are encouraged to assess their needs and use tools like debt calculators to choose the best option for paying off debt.

Takeaways

• 💳 Balance transfer credit cards and personal loans are common debt consolidation strategies to pay off debt faster with lower interest.
• 🔄 A balance transfer is when you transfer credit card debt to a new card with 0% APR for 15 to 21 months, ideal for smaller debts under $15,000.
• 📊 Balance transfer cards are best suited for those with good to excellent credit scores (690 or higher).
• 💸 Personal loans can consolidate multiple types of unsecured debt, including credit card, medical, and payday loans, offering more flexibility.
• 📈 Personal loans are ideal for larger debts with repayment terms ranging from 1 to 7 years and are accessible to borrowers across the credit spectrum.
• 📋 Balance transfer cards typically charge a 3-5% balance transfer fee, while personal loans may have origination fees of 1-10%.
• 💰 If you can pay off debt within the promotional period of a balance transfer card, it's a cost-effective option. Otherwise, a personal loan might be better.
• 🧮 Balance transfer cards usually have lower credit limits, while personal loans can offer higher loan amounts up to $50,000.
• 📊 It's important to compare the costs (APR, fees) between balance transfer cards and personal loans, factoring in your credit score and debt amount.
• 📅 Managing long-term spending habits is key to staying out of debt after consolidating. Establishing a budget is crucial.

Q & A

What is a balance transfer credit card?

A balance transfer credit card allows you to transfer an existing credit card balance to a new card, usually offering 0% APR for a promotional period of 15 to 21 months. It is best for small amounts of credit card debt, typically under $15,000.

Who should consider using a balance transfer credit card?

Balance transfer credit cards are ideal for individuals with good to excellent credit (690 or higher) and who have a smaller amount of credit card debt they can pay off within the promotional 0% APR period.

What is a personal loan and when is it useful?

A personal loan is a loan used to pay off credit card debt or other types of unsecured debt, and it is best for larger debts that may take 1 to 7 years to pay off. It can be used for various debts, including credit card, medical, or payday loans.

Who can qualify for a personal loan?

Personal loans are available to borrowers across the credit spectrum, including those with fair or bad credit (689 or lower). However, terms like interest rates will vary depending on the borrower’s credit profile.

What type of debt is best suited for a balance transfer credit card?

Balance transfer credit cards are specifically designed for credit card debt only. They are not suitable for consolidating other types of debt like medical bills or personal loans.

How do the fees compare between a balance transfer credit card and a personal loan?

Balance transfer credit cards often have fees between 3-5% of the total transferred balance. Personal loans may have an origination fee ranging from 1-10% of the loan amount, along with interest rates that vary from 6-36%.

What should you consider when deciding between a balance transfer credit card and a personal loan?

You should consider the type and amount of debt, your credit score, how quickly you can pay off the debt, and the costs associated with each product, including interest rates, promotional periods, and fees.

How does the promotional 0% APR period on a balance transfer credit card work?

During the promotional 0% APR period, which typically lasts between 15 to 21 months, you do not pay any interest on the transferred balance. However, once the period ends, any remaining balance will incur interest.

What factors influence the interest rate on a personal loan?

The interest rate on a personal loan depends on factors like your credit score, debt-to-income ratio, the loan amount, and the loan term. Rates generally range between 6-36%.

What steps can help you avoid falling back into debt after using a balance transfer credit card or personal loan?

To avoid falling back into debt, establish a realistic budget and avoid increasing credit card balances after paying off your debt. Consolidation is a tool to manage debt but won't solve long-term spending habits.