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Key takeaways
- Debt consolidation loans and balance transfer cards have distinct advantages and disadvantages when it comes to paying off debt.
- Debt consolidation loans give you a definite payoff date with a fixed interest rate. They can be a smart choice for consumers who need longer payoff periods or who plan to pay down different types of debt.
- Balance transfer credit cards — especially those with long introductory APR offers — may be a better fit for those who can pay off their debt more quickly or who want to retain the flexibility of having an open credit line once they’re out of debt.
Two of the most popular methods to help pay down debt and save money along the way are balance transfer credit cards, which let you transfer debt from other sources and pay as low as 0 percent interest for an introductory period, and debt consolidation loans, which are unsecured personal loans that you use to pay off your other debts, often at a lower interest rate.
Understanding the differences between the two can help you decide which is best for your debt consolidation goals.
What is a balance transfer credit card?
A balance transfer card is a credit card that typically offers low introductory rates when you transfer balances from other credit cards with higher APRs. If you have excellent credit, you may qualify for a 0% intro APR credit card.
Any low starting rate you receive will usually only last for 12 to 18 months, but may be longer or shorter depending on the credit card issuer. Most balance transfer cards charge a fee of 3 to 5 percent of the amount you’re transferring, which can eat into the benefit of a balance transfer. And if you don’t pay the transfer balance off within the introductory period, you’ll end up paying a much higher rate and reducing any potential savings.
Who is it best for?
The best balance transfer cards of 2025
If a balance transfer card is the right fit for your debt consolidation needs, review Bankrate’s list of the best credit cards for balance transfers.
Learn more
What is a debt consolidation loan?
A debt consolidation loan is a personal loan with a fixed rate and set payment, usually between 12 and 84 months. You receive all of your funds at once in a lump sum, and depending on the lender, you may pay an origination fee ranging anywhere from 0 to 12 percent.
One distinct advantage of using a debt consolidation loan to pay off credit cards is its positive impact on your credit utilization ratio. This ratio measures how much of your available revolving debt you’re using. The higher the ratio, the lower your credit score. By consolidating your credit card balances with a loan, your credit utilization ratio will drop, potentially giving your credit score a boost.
The major downside is that debt consolidation loans don’t offer a minimum payment option. This could make it unaffordable if you have a variable income, such as one that fluctuates with tips or commissions. You may also want to skip this type of loan if your credit is in bad shape, as rates can be as high as 36 percent for borrowers with bad credit.
Who is it best for?
- Borrowers who want a clean credit card slate: A debt consolidation loan is best for borrowers who want to clear out credit card debt with a definite payoff date. Average personal loan rates are currently at 12.65 percent, while borrowers with excellent credit may qualify for rates as low as 6.5 percent.
- Those who want to save on interest charges: If you don’t think you could pay off your balances before the end of a balance transfer card’s introductory period, a debt consolidation loan could be a cheaper option. The average current credit card rate is around 20 percent.
- Consumers looking to improve their credit scores: A debt consolidation loan can be a great option to get off the revolving credit merry-go-round and boost your credit score by lowering your credit utilization ratio. However, you’ll only maintain the credit score improvement if you avoid racking up credit card balances again after they’re paid off.
The best debt consolidation loans of 2025
A debt consolidation loan can be a great option if you qualify for a low rate. Here are Bankrate’s picks for the best debt consolidation loans.
Learn more
Should you get a personal loan or a balance transfer credit card?
The decision between a balance transfer card and a debt consolidation loan depends on how quickly you want to pay the debt off and how much flexibility you want with the payments. Seeing the benefits side by side may help you decide between the two choices.
| Balance transfer cards | Debt consolidation loans |
| You can afford to pay the transferred balance off quickly. | You need more time to pay the balance off. |
| Your income varies month-to-month. | You have a consistent monthly income. |
| Your credit score is high enough to qualify for 0 percent interest offers. | Your credit is fair or good, but not excellent. |
| You don’t qualify for zero-fee debt consolidation loans. | You want to improve your credit score and stop using credit cards. |
| You’re only consolidating credit card debt. | You want to consolidate different types of debt. |
| You want the flexibility of a credit line in the future | You’ve resolved to stop using credit cards altogether |
Bottom line
Eliminating credit card debt can be a great way to strengthen your financial foundation. However, if you frequently turn to balance transfer or debt consolidation loans, it may be time to examine your spending habits and budget. Approach each option with caution, and if you aren’t sure which will work best, speak to a financial advisor to determine which option best fits your needs.
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