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

7 min read

Last Updated: November 11, 2025

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Key Takeaways

Balance transfers move one or more high-interest debts to a credit card with a lower interest rate.
Debt consolidation loans combine one or more debts into a single loan with one monthly payment.
Both balance transfers and debt consolidation loans may help you pay off debt faster or reduce your minimum payment.

What’s the difference between a balance transfer and a debt consolidation loan?

If you’re trying to pay down debt, you may have heard of both. The difference isn’t always clear. But choosing the right one may help you get out of debt faster, pay less interest, and reduce financial stress.

Which is better? How do you choose the right option?

We’ll go through the basics of debt consolidation and balance transfers so you can make the right choice.

Both balance transfers and debt consolidation loans are options for paying off debt faster, reducing your monthly payment, and paying less interest.

What is a balance transfer?

A balance transfer takes the amounts you owe on one or more debts and moves them to a credit card with a lower interest rate.

The types of debt you can move depend on the card issuer, but may include the following:

Credit card debt
Car loans
Personal loans
Home loans
Student loans
Medical bills
Taxes you owe

This lets you pay off your credit card balance at a lower annual percentage rate (APR), saving you money. You may also be able to lower your monthly payment or get out of debt faster.

You may have also heard of this as “credit card refinancing.” It’s the same idea.

Many card issuers provide 0% interest balance transfer card offers, which let you pay no interest over a specific period of time. This can be a big help in paying off your debt.

Here’s an example of how a balance transfer works:

Imagine that you have a $10,000 balance on a credit card with an interest rate of 20%. If you pay that off in one year, you’ll pay $1,109 in interest (assuming you spread the payments out equally).

If you transfer that balance to a card with a 0% balance transfer introductory rate and pay it off in a year, you’ll pay no interest and save $1,109. You may have to pay a fee to initiate the balance transfer, though. A 5% fee is common. A 5% fee on your $10,000 debt would be $500. You’d still save $609 by transferring your balance.

What happens after a balance transfer?

Most balance transfer credit card offers include a 0% interest rate for a certain number of months. After that, the APR goes back to the card’s normal rate. If you didn’t pay off all of the debt that you transferred by the end of the introductory period, the debt that you paid off and any new charges will accrue interest at the normal rate.

Be sure to check the terms and conditions of your balance transfer card offer to learn the standard APR for the card and check to see if there are any penalties for not paying off the entire transferred amount.

To make the most of your balance transfer, pay off your debt by the end of the introductory period.

Once you’ve paid off your debt, you’ll still be able to use the credit card as normal and earn any rewards offered by the issuer. If you make on-time payments, you’ll also build up a solid credit history.

How will a balance transfer affect my credit score?

A balance transfer can affect your credit score in a few ways.

First, a credit card issuer may use a hard inquiry to check your credit report—and these inquiries can impact your credit score.

Second, opening a new credit card account may affect your credit utilization ratio, which is one of the factors used to determine your credit score.

Your credit utilization ratio is the percentage of your total available credit that you’re using. So, if you open a new card, your available credit goes up, and your utilization goes down (unless you start spending more).

If you close an old credit card, however, you could actually cause your credit utilization ratio to go up. That’s generally not good for your credit score.

For details on how your credit utilization ratio is calculated and some examples of how it works, check out “What Is Your Credit Utilization Ratio?”

In general, however, paying down debt faster is good for your credit in the long run.

Is a balance transfer a good idea for me?

Take these five steps to determine whether a balance transfer credit card offer will be useful in paying off your debt:

Add up the total amount of debt that you could transfer.
Estimate how much you can pay toward the total debt during the promotional period.
Calculate how much interest you'll pay on the remaining balance after the rate reverts to the standard APR. (Not sure how to calculate interest on credit card debt? Use the Discover Credit Card Interest Calculator to get an estimate.)
Add any fees associated with the balance transfer.
Compare what you would pay at your current APR to the balance transfer opportunity.

If transferring your credit card balance results in a faster payoff or less interest paid, it may be a good idea.

If you apply for a balance transfer credit card, remember that the low promotional APR only applies to the transferred debt. If you make new purchases on the new credit card, you may pay the standard APR for those purchases.

Did you know?

In addition to a 0% balance transfer introductory rate, Discover^® Cards with balance transfer offers come with no annual fee, just like all other Discover Cards. Compare all of the Discover Cards to see interest rates, balance transfer offers, and rewards.

Learn More

What is a debt consolidation loan?

A debt consolidation loan moves one or more high-interest debts to a single loan with a lower interest rate. You can move many types of debt, including credit card debt, other loans, medical bills, and tax bills to your debt consolidation loan, just like you can with a balance transfer. Managing a single monthly payment is simpler, and the lower interest rate could help you get out of debt faster. You may also be able to extend the repayment period on your current debt.

There are both secured and unsecured debt consolidation loans.

Secured loans require collateral, like a house, vehicle, or retirement fund. If you can’t pay the loan, your bank will take possession of the collateral. Using a home equity loan for debt consolidation is an example of a secured debt consolidation loan.

Unsecured loans don’t require collateral. The loan amount for is usually lower for an unsecured loan than a secured one, and the interest is usually higher. But you don’t have to back the loan with something you own. Many personal loans used for debt consolidation are unsecured.

How will a debt consolidation loan affect my credit score?

Like a balance transfer credit card offer, a loan issuer will probably run a hard inquiry on your credit report, which may slightly decrease your score.

Loans don’t directly affect your credit utilization ratio. But moving debt from a credit card to a loan may reduce your credit utilization, benefiting your credit score. And again, paying off debt faster will always be beneficial to your credit in the long run.

Be wary of debt relief scams

Scammers often target consumers seeking debt relief. Here are four signs that a debt relief provider is a scammer, according to the Federal Trade Commission (FTC):

Collecting fees before they do anything to help you deal with your debt.
Calling unexpectedly and offering to help you with your debts.
Guaranteeing results from a “new government program.”
Trying to enroll you in a program without reviewing your financial information.

To avoid scammers, research credit counseling with your local consumer protection agency or ask for a referral from your financial institution. You can also use the Financial Counseling Association of America or the National Foundation for Credit Counseling to find a local credit counselor. Some credit card account statements also include contact information for helpful resources if you’re struggling with debt.

You can also get in touch with your credit card or loan issuer to discuss ways to pay down your debt faster. You may discuss debt settlement, refinancing, or other programs that your financial institution offers.

If you suspect a debt relief scam, let the FTC know at reportfraud.ftc.gov.

The bottom line

Balance transfers take one or more high-interest debts—including credit card debt, student loans, medical bills, and more—and move them to a single, lower-interest credit card. Balance transfer credit card offers usually have very low interest rates for a specified period of time.

Debt consolidation loans take one or multiple debts and move them to a single, lower-interest loan. You could use a personal loan, a home equity loan, or other types of loans to consolidate debt.

Both options can help you get out of debt faster or reduce your minimum payment. You’ll pay less in interest and only need to manage a single monthly payment.

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