If you’re struggling to pay off a high-interest personal loan, transferring the balance to a low-interest credit card can seem appealing. But is it the right move for you?
Here’s what you need to know before making the switch.
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Pros of Balance Transferring a Personal Loan
- Lower interest rate. This is the main benefit. You can qualify for a 0% intro APR on a balance transfer credit card, allowing you to save substantially on interest.
- More flexible payments. With a personal loan, you have a set monthly payment. But with a credit card, you can pay more or less each month as long as you make the minimum.
- Pay off debt faster. If you take advantage of the 0% intro APR and pay down the principal, you can eliminate your debt more quickly.
Cons of Balance Transferring a Personal Loan
- Balance transfer fees. Most cards charge a 3-5% fee to transfer your balance. Factor this into the overall savings.
- Accruing new debt. It’s easy to overspend with a credit card. Using the card for purchases could negate the savings.
- Credit limit impact. Your balance transfer could max out your credit limit, impacting utilization.
- End of intro APR period. Once the 0% APR ends, the remaining balances accrue high interest rates. Have an exit strategy.
Tips for Success
- Compare balance transfer cards and fees to find the best offer. Bank of America, Capital One, and Discover allow personal loan balance transfers.
- Make a plan to pay off the full balance transfer amount within the intro 0% APR period.
- Avoid using the card for new purchases until the transferred balance is paid off.
- Consider debt payoff methods like debt snowball or balance transfer shuffling to make accelerated progress.
The Bottom Line
Transferring a personal loan to a credit card can provide big interest savings if done strategically. But it also comes with risks. Make sure you have the financial discipline to stick to your payoff plan. Crunching the numbers is crucial to determine if it’s the right move for your situation.
