Consolidation vs Balance Transfer: The Best Cards and Loans

Debt consolidation comes in many forms, from debt management plans to consolidation loans and balance transfers. Your credit history and debt-to-income ratio will dictate which option is best for you, but for debtors not experiencing financial hardship, it’s a choice between a balance transfer and a debt consolidation loan, two options we’ll compare and contrast in this guide.

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Debt Consolidation vs Balance Transfer

Both debt consolidation and balance transfers work by moving your debt around. In the case of the former, your debts are cleared and then replaced with a new personal loan. As for a balance transfer, it works by shifting balances from one or more credit cards to a new card, one that offers a 0% introductory rate.

Consolidating your debt allows you to benefit from additional perks and interest rates, but there are potential downsides that need to be considered. For instance, while a balance transfer offer may sound like a no-brainer because of the 0% introductory APR, the terms may be much less favorable when that period ends. 

As for a debt consolidation loan, it can save you money in the short term, but leave you at a severe disadvantage in the long term. 

Advantages of Balance Transfers

Save Money

A balance transfer offer includes a 0% APR for between 6 and 18 months. In this time, more of your monthly payment goes toward the principal and every additional dollar you pay towards your debt takes you closer to clearing it in full.

You will be charged a balance transfer fee, but this is levied as a small percentage of the total balance and you’ll save much more than you’ll spend.

Escape Debt Quickly

You’re in it for the long haul when you’re in debt. Every monthly payment you make barely scratches the surface, because each time you’re paying as little as 2% of the total balance, most of which is interest.

It can take years to escape debt if all you’re doing is meeting the minimum monthly payment, and even if you increase it, the fact that more of your money goes towards interest means you have very little disposable income left to pay the principal. A balance transfer card negates this issue and significantly reduces the time it takes to clear your debts.

Streamline your Debts

If you have multiple credit card balances, it’s difficult to keep track. More balances mean more monthly payments and a greater risk of penalty interest rates and fees. You don’t have a lot of paperwork to deal with and can streamline all your debts and obligations.

You can move up to 5 balances to a single balance transfer card, even if those cards are owned by different credit card companies.

Disadvantages of Balance Transfers

There is a Fee

As beneficial as a balance transfer offer seems, it’s not without its flaws and one of those is a transfer fee. This fee is charged when you transfer your money and is often between 3% and 5% of the total balance.

Higher Interest Rates and Penalties

As enticing as the introductory period is, the benefits stop when that period ends, and a high-interest rate takes over. The interest rate you receive at the end of this period is often much higher than the average, allowing the provider to offset all those months when they didn’t earn any interest.
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The penalty interest rates may also be much higher, and you’ll be hit with a sizable fee when you miss a payment or initiate a cash withdrawal.

You Can’t Move Money to the Same Provider

You can consolidate credit card debt from one provider to another, but you can’t move it to cards provided by the same bank. These offers were created to tempt users into leaving competitor brands and are used as introductory rates to increase customer acquisitions. There’s no benefit to willingly reducing a current user’s debt when you already have them locked-in.

You Need a High Credit Limit

To consolidate your debt with a balance transfer, you need a card that has a high credit limit, which may be out of the question if you have a low credit score. The problem is, the more credit card balances you have, the lower your credit score will be and the less chance you’ll have of securing a sizeable balance transfer card.

Your Credit Report Will Take a Hit

Applying for a new card will hurt your score, as will signing up for that card. What’s more, credit scoring systems penalize users who max out their credit cards, so when you move all of your debts onto a single card and max it out, you may lose even more points.

This is just a short-term issue and it’s one that will improve in time. However, the 50+ point hit you take when utilizing a balance transfer could reduce your chances of getting a car loan, mortgage or low-interest personal loan.

Advantages of Debt Consolidation

More Manageable Debt

Debt consolidation, just like debt management, makes your debts more manageable. Multiple payments become a single manageable monthly payment, which also reduces the risk of penalties and fees.

Cleared Debts

If you’ve been struggling with debts for many years and have more balances than you can count, it’ll be a huge relief to see those accounts cleared. You’ll still have the same debt, but you’ll have fewer accounts and can start looking forward to a brighter financial future.

Lower Monthly Payment

A debt that costs you $800 a month could be reduced to just $300 or $400, leaving more money in your pocket at the end of the month and giving you more breathing space. If you don’t have much money left over after paying your debts, consolidation can help.

Disadvantages of Debt Consolidation

Longer Term

A three-year debt could become a 7-year debt; 5 years could turn to 10. One of the biggest issues with debt consolidation is that it’ll leave you lumbered with debt for many years to come.

You May Pay a Fee

You may be required to pay an origination fee, which is often charged as a percentage of the total loan. In the grand scheme of things, this fee is pretty insignificant, but it makes consolidation loans less advantageous.

You Will Pay More Interest

A consolidation loan works by increasing your loan term. You can reduce your monthly payment and may even receive a lower interest rate, but the longer-term means you will pay more interest over the lifetime of the loan.
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The Best Balance Transfer Credit Cards

A good balance transfer card is one that offers an extended introductory rate, a low APR once that period ends, and low penalty fees. Here is a small selection of the very best balance transfer credit cards out there right now.

The Discover It Card

This is one of the best credit cards for balance transfers, with low-interest rates and lots of rewards. It’s an all-rounder and offers a number of different benefits:

  • APR between 13.49% and 24.49% variable.
  • 0% on purchases for 6 months.
  • 0% on transfers for 18 months.
  • $0 annual fee.
  • A credit score above 690 is required.

One of the best things about this card is that it offers up to 5% cash back on all purchases. Once that introductory period ends and you clear your balance, you can begin using it like a normal credit card, one with a respectable interest rate and some great perks. What’s more, while Discover cards are not as common as Visa or MasterCard, they are still accepted nationwide and are actually more common than American Express.

AMEX Everyday Credit Card

Speaking of American Express, this is one of their better cards. It is tied-into the generous AMEX points system, which means you can earn stacks of points every time you spend. It also has an extended balance transfer period and a host of other perks:

  • APR between 14.49% and 25.49% variable.
  • $0 annual fee.
  • $0 balance transfer fee.
  • A credit score above 690 is required.
  • 0% on transfers for 15 months.

You can earn points when you use your card and there are also bonuses to earn, including double points when you spend money in supermarkets (up to $6,000 a year) and 20% more points when you use your card 20 times or more during a single billing cycle.

HSBC Gold MasterCard

The HSBC Gold MasterCard is a little different to the others on this list, with a focus on improved basic fees and terms as opposed to rewards and perks. However, you’ll need the same high credit score to apply.
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  • APR between 12.49% and 20.49% variable.
  • $0 annual fee.
  • 4% balance transfer fee.
  • A credit score above 690 is required.
  • 0% on transfers for 18 months.

This card doesn’t come with the big bonuses offered by the others, but what it lacks in extras it more than makes up for in rates and terms. The average APR is lower, there is an 18-month introductory period and while you need to pay a balance transfer fee, there are no penalty fees or late fees.

The Best Debt Consolidation Loans

The best debt consolidation loan providers will offer you large loan amounts, limited terms, low-interest rates, and low monthly payments. You can compare these benefits to determine which loan is best for you, but here are a few of our favorites:

Discover Personal Loans

You can get anywhere from $2,500 to $35,000 with this consolidation loan company and the interest rates go as low as 6.99%. You can extend your loan to 7 years, but you will need a credit score in the mid-600s to qualify.

Lending Club

Lending Club works a little differently, as the loans are provided by a community and not by a bank or credit union. You can get loans for as little as $1,000 and they are offered in increments of $25, with a maximum of $40,000. The interest rates vary, but they go as low as 6.95%.

The only real downside to this provider is that the origination fees can be quite high, reaching 6% in total.


With interest rates under 6% and origination fees that can be as low as 0.99% (but also as high as 5.99%), BestEgg is a great option for debtors seeking to borrow anywhere from $2,000 to $35,000. The loans are also funded quickly, and you can have your money within 24 hours.

OneMain Financial

With interest rates as high as 35.99%, this is not the best option for everyone. However, there is no minimum credit score requirement and if your options are limited due to bad credit, OneMain Financial could be just what you’re looking for

You can borrow anywhere from $1,500 to $30,000, with terms of between 2 and 5 years and physical locations in 44 states.

Conclusion: One of the Many Options

Debt relief is a vast and varied industry. Your options for escaping debt are as numerous as your options for acquiring it. Debt consolidation and balance transfers are ideal if you have a decent credit score but are struggling with high monthly payments.
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But if your credit score is terrible, you own your own home, you have a lot of student loan debt or you recently lost your job, you may need to look elsewhere.

A debt management plan can help those struggling to make traditional debt consolidation work; a debt settlement program is perfect for anyone drowning in credit card debt and collections, and then there’s bankruptcy, which is the ultimate last resort option, but an option, nonetheless.

We have many guides to help you regardless of the option you choose and the situation you’re in.