woman learning the difference between a balance transfer and personal loan
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Refinancing with a Balance Transfer Credit Card vs. a Personal Loan

Struggling to decide between refinancing your credit card with a balance transfer or a personal loan? Getting familiar with the two is a good place to start. To begin, we recommend reading about and refinancing with a personal loan, so you have an idea of what we’re talking about.

Once you know what you’re choosing between, you can move forward with your decision – and use our tips to make sure you’re making the right one.

When Refinancing With a Balance Transfer Card Makes Sense

While it seems like a pretty simple concept, there are plenty of important things to consider when you think about refinancing your credit card with a balance transfer. Here’s a few:

1. You Have the Income to Pay Off Your Balance Short-Term

The main benefit of using a balance transfer card is the ability to tackle your debt while paying little-to-no interest during the promotional period. Plenty of credit cards offer 0% interest for a certain period of time when you first open the account. If you’re able to pay your debt off before the balance transfer offer period ends, you could save a good chunk of change by not paying any interest.

2. You’re Not Tempted to Keep Spending

Shopping addicts, look out – self-control is important here. For refinancing with a balance transfer credit card to be effective, you should avoid adding many (if any) charges to your balance. Remember, this balance transfer is to help you get rid of debt – not rack up more.

If you’re not able to curb the spending on your new account, a balance transfer credit card might not be the best option for you.

Of course, sticking to a detailed debt reduction plan is highly advised for helping you stay on course.

3. The Fees Will Not Greatly Impact Your Savings

When you do complete balance transfer, you can usually expect to see a fee associated with the transaction. Depending on the amount of debt you’re transferring and the interest rates you qualify for, the balance transfer fee could either be a minimal or major expense. Just be sure to plan ahead.

Remember, refinancing with a 0% APR card will save you the most money on interest – as long as you pay off the balance before the promotion ends.

When Refinancing With a Personal Loan Makes Sense

Keep in mind, there are plenty of times when refinancing with a personal loan could be a much better option than a balance transfer. Here’s a few situations where that might be the case:

1. You’re Limited by Your Credit History

While you generally need your credit score to be around 670+ to get approved for a balance transfer credit card, a score of 640+ is usually sufficient to apply for most personal loans.

2. You Need More Time to Pay Off Your Debt

Personal loans are a long-term option. You could have three to five years to repay your loan, compared to a balance transfer cards that may have a grace period of 12 to 18 months. Basically, if you would prefer to tackle your debt at a lower rate over a longer loan term, this option might be a better fit.

Some personal loans come with no prepayment penalties, meaning you can pay off your balance early if you get the opportunity. So, even if you agree to pay your loan back over five years, there will be no penalties for paying it off in three – and you might save on interest, too.

3. You Need a Higher Amount to Pay Off Your Debt

You may also be able to pay off more of your debt with a personal loan compared to a balance transfer card. Balance transfer credit cards may have a credit limit that won’t be enough to cover what you want to transfer. Card issuers aren’t always upfront about what the credit limit is for their accounts, but $5,000 to $10,000 is considered high. They might cap transfers at a certain percentage of the credit limit (i.e. 75%), as well, which can be limiting.

And here’s another factor that might limit how much you can transfer: the balance transfer fee, usually 3% to 5% of the transfer amount, generally is considered part of the new balance. So the more you transfer, the higher your fee – all while having to fit within that percentage limit.

With personal loans, you probably don’t have to worry about such limits. You can expect to see loan amounts ranging from $2,000 to $35,000.

4. You Would Prefer a Structured Pay-Off Plan

You will probably have a fixed monthly payment that does not change for the duration of your personal loan. Stability and predictably, in a nutshell.

A balance transfer credit card will often have a variable interest rate. Sure, the rate could go down with a variable rate, but it could also go up – which will cost you more in the long run.

Get a rough estimate on how much you could save with our personal loan calculator, and see if a personal loan might be the best fit for you.

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.


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