Debt Consolidation Loan Vs Balance Transfer: Which Is Right for You?

Debbie | How Debbie Saves
by Debbie | How Debbie Saves

If you're in credit card debt, you may be thinking about doing a balance transfer to a 0% card or doing a debt consolidation loan.


Let's talk about debt consolidation loan vs balance transfer. What are those? What are their pros and cons? Which one should you choose if either? Let’s get into it.

Balance transfer is an offer you get from a credit card company to transfer a balance from a credit card that you have to their card, usually under 0% interest for 18 months. However, do you really think they are being that generous and making absolutely nothing off you for those 18 months? Let’s take a closer look.


If you have a credit card at 15% interest, when you see a 0% offer, you may think that you can save that 15%, and you are technically right. However, know that you will be assessed a fee. There is always a fee, even if they say there is no fee, because they need to make money off you from the beginning. I have seen it come up to $200 on some of my clients’ cards.


So now you have a 0% interest instead of a 15% for 18 months, and you know that you have a 0% card on you. What are the chances that for 18 months, you are not going to charge one thing on that card? I think that the chances are really low. It is possible, of course, that you are completely into paying off this debt and being debt-free, and in that case go for it, but most people have credit cards because they are used to using credit cards.


If that is you, what are the chances that you are going to pay off that entire balance that used to be at 15% before the 18 months is over? They count on that not being the case. They count on you procrastinating, forgetting when you got that card, forgetting about the 18 months that you originally thought you were going to take to pay off that card.


Debt consolidation

Things happen in life, sometimes people go from making a huge credit card payment to making the minimum payment, and you might still have some balance left over by the end. What happens now? The balance that you have left over is now being assessed 18%, 20%, 22% interest.


That is why it is important to read the fine print, which will tell you exactly how much they will charge you after the 0% period ends. Now you have this balance, which probably grew a little bit, because you have charged things on top of it. So now you are worse off than you were with the 15%, paying that extra interest.


My suggestion to you is if you are thinking about doing a balance transfer credit card, make sure that no matter what, you pay off that card. Do not use that card to charge anything extra, even if they tell you that you can earn cashback or some kind of points because they want you to keep using it. If your intention was to make that transfer anyway to save what used to be 15%, you never want for that 18 months and one day to go by and all of a sudden be assessed a huge fee.


What about debt consolidation loans? In the first scenario, I said that you had one credit card at 15%. Meanwhile, a debt consolidation loan is when you take several credit cards and you put it together and pay one interest. It is not going to be 0% because it is a loan, but the intent of it is taking say five or ten credit cards and consolidating them into one loan.


Your credit cards can range from 10% to 22% interest. Let's say that the loan is at 15% interest. Overall, did you save money? More than likely. But it depends on all your interest rates and the amounts that you owe on them.


For example, if you have a card with a 10 % interest, but that loan is at 15%, are you really saving money? So before making a decision, look at the interest rates you are paying and compare them to the potential ones on the loan.

Online banking

Once you get a debt consolidation loan, they pay off all your cards, take the amount you owed and put it into this new loan. Sometimes it is a good idea, and sometimes it is not, depending on the interest rate. In any case, let’s talk about the elephant in the room. Why did you get into credit card debt to begin with?


Are you someone who spends without a plan? Are you an emotional spender? Are you someone that does not want to track their expenses, does not have a budget, and so you rely on credit cards and credit card points?


If that is you, then whether you had one card at 15%, or whether you had 10 cards that you have consolidated into one loan, the problem is still there, and it can get worse pretty quickly.


The overspending, the emotional spending, the relying on credit cards, the living above your means, will still be there no matter if you do a balance transfer or a consolidation loan.


This is why I am not a big fan of either of these options – they do not fix the problem, so you are just going to get deeper and deeper into credit card debt. I am not trying to come to you with negativity when it comes to finances, but I am being real because I see it too often.


So if you do decide to use one of these offers, make sure that the math makes sense, and take those cards out of your wallet – never use them, not for any subscriptions or anything else. And most importantly, deal with why you are overspending or using those cards to begin with, because without that work, you are not going to be able to get ahead.


Debt consolidation loan vs balance transfer

I hope that this summary of balance transfers and debt consolidation loans has been useful to you, and you will make your decision carefully and wisely.


If you have done one of these in the past, feel free to share your experience in the comments. Were they beneficial for you? Would you do it again?

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 2 comments
  • Rca28488739 Rca28488739 on Oct 20, 2023
    Hi my name is Sandra, I have been doing the 0% balance transfer and find that it has helped me. Like you said, you have to make sure that you don't put anything else on the card while doing this. What I have found that has helped me is by only transferring an amount that I know that I can handle for the 18 months compared to putting all of the balance towards it. I make sure to still put more than what is required on both cards. This is helping some. Makes it hard when life happens. example unplanned repairs or replacements. ( washing machine repairs).
  • Alison Legere Alison Legere on Oct 20, 2023
    I have played this 0%. If you put ANY new debt on the card you are apt to still owe all of the ORIGINAL debt at the end of the 18 months.
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