Personal loan vs. credit card debt: Which is better?

We've all been there—weighing options, doing the math, and hoping we're making the right decision. Do you consolidate with a personal loan, or should you transfer your balances to a new credit card?

The best way to deal with your debt will depend on a lot of factors, so the more you know, the more confident you can be about choosing the best option for you. It's about taking control, making informed choices, and moving forward with confidence. And let's face it, confidence looks good on everyone.

Let’s explore personal loans versus credit cards, and how the different options might align with your life, your goals, and your financial health.

Personal loan vs. credit card—key differences

Personal loans and credit cards are very different, and you use them in different ways to deal with existing debt. Here's a basic rundown:

• Personal loans are installment debt with a set payoff schedule and a fixed interest rate. You could use a personal loan to consolidate multiple high-interest debts. 

• Credit cards are revolving debt with variable interest rates. You could use a balance transfer to move debt from one credit card to another. Some balance transfer cards have temporary promotional 0% APR offers.

If you're hoping to find debt relief and believe debt consolidation could help, you can explore both personal loans and balance transfer cards to figure out which makes the most sense. While choosing can sometimes feel complicated, we’ll walk you through the options so you get the big-picture view. 

Personal loans key features

Personal loans are installment loans you can use for purchases or debt consolidation. You get a lump sum distribution of money up front and pay it back on a set schedule. Rates are fixed, and payments don't change, so you know the total and monthly costs up front.

Personal loans typically offer lower interest rates than credit cards (unless you have an intro 0% APR offer on the card). This means you could potentially reduce your monthly debt payment by consolidating high-interest credit card debt with a personal loan.

Credit card key features

Credit cards provide access to a line of credit you can draw from as needed. Payments depend on how much you've borrowed. Cards have a variable rate and the minimum payment is usually a percentage of your balance. There's no specific timeline for payback as long as you make your minimum payment each month.

Balance transfer credit cards are special credit cards that have some type of promotional interest rate on balance transfers, usually 0% for 12 months or more. You typically need a good to excellent credit score to qualify for a balance transfer 0% APR offer.

Most cards charge a balance transfer fee of 3% to 5% of the transferred balance. You can transfer existing credit card balances up to the amount of your credit line minus the balance transfer fee. Any balance you don't pay off by the time the 0% rate ends starts to accrue interest at the standard credit card interest rate.

Here's a quick comparison chart:

When a personal loan may be better for debt

If you want debt relief, choosing a personal loan over credit card debt can make sense if:

• You need longer to pay off your debt. Personal loans can have multi-year payoff times, such as a five-year repayment term. Most 0% APR balance transfer offers last 12 to 24 months. If you can't pay off your debt within that time, a personal loan could be a better fit.

• You want predictability. You’ll know your interest rate and total borrowing costs up front with a personal loan. You'll also know exactly when you'll be debt free without having to use a debt payoff calculator to find out.

• You don't trust yourself to pay more than the minimum. When you use a balance transfer card to consolidate debt, paying only the minimum payment likely won't get rid of your balance before the intro rate ends. By contrast, personal loan payments are set to ensure your debt is paid in full by the end of the loan term. 

Here's an example. Let's say you have $10,000 in credit card debt. Here’s the difference between paying off your credit card balance and using a personal loan to pay off the same amount.

In this case, a personal loan provides you with lower total costs and more affordable monthly payments.

When a credit card balance transfer card may be a good debt strategy

A credit card balance transfer could be a good debt repayment strategy if you:

• Qualify for a card with a 0% APR for transferred balances 

• Can pay off the transferred amount within the 0% APR period 

• Are confident you won't get deeper into credit card debt

Balance transfers may end up being expensive because you’ll pay an upfront balance transfer fee, then a high interest rate if you don't pay off the full balance before the 0% rate is over.

Here's an example: Let’s say you owe $10,000 in credit card debt. Here’s how a balance transfer card could look when you pay the balance off before the end of the 12-month 0% rate period, and when you don’t meet the deadline: 

If you can meet the much higher monthly payments, you’ll pay off your debt in just 12 months with a balance transfer card. That’s much shorter than the multiple years for a personal loan. But the payments that are nearly four times as much as the loan payments could be a real stretch for some people. 

You could also risk getting more deeply into debt. Opening a new credit card means more available credit. If you charge up those cards again, you'll owe money on both the old card and the new balance transfer card.

Comparing credit card vs. personal loan debt

In some situations, a personal loan could make more sense than a credit card, so the best way to pick the right approach is to run the numbers. Look at the monthly payments, the total interest you'll pay, what kind of balance transfer offer you might qualify for, and how long it will take you to pay off your balances.

If you qualify for a good 0% APR off, a balance transfer could be useful. However, if you need more time than a balance transfer offers or you're not sure you can pay in full before the offer expires, a personal loan may be the better fit.

What’s next?

Now that you understand the difference between a personal loan vs. credit card debt, including balance transfer debt, here are some good next steps:

• Compare personal loan offers you can qualify for based on your credit and debt-to-income ratio to learn what a personal loan would cost over time.

• Explore balance transfer offers to find out if you can qualify for a 0% APR card.

• Decide whether a personal loan or a balance transfer makes the most sense to help resolve your debt.

• Make a budget so you can pay your personal loan or balance transfer payment while avoiding getting deeper into debt.