You have $8,000 in credit card debt at 22% APR. You can't pay it off right away. Two options: balance transfer card or personal loan. Which saves you more?
Let me walk you through a real example from a client named Tara.
Tara had $8,000 on one card at 23% APR. Minimum payment was around $180. At that rate, she'd pay off the debt in around seven years and pay about $7,000 in interest. Yes, you read that right — almost as much interest as the original balance.
First option: balance transfer card. She found a card with 0% APR for 15 months, a 3% transfer fee ($240). Her new monthly payment would be $535 if she wanted to pay off the full $8,240 before the promo ended. Could she afford $535? No. She could only afford around $300.
If she paid $300 a month on a 0% card, she'd pay off around $4,500 in 15 months, leaving around $3,740 still accruing interest (at the card's standard rate of around 19%). Then she'd be back where she started. The balance transfer would only work if she could pay aggressively during the 0% window.
Second option: personal loan. Tara got an offer for $8,000 at 10.5% APR with a 2% origination fee ($160). Four-year term. Monthly payment: around $205. Total interest: around $1,850. Total cost including fee: around $10,010.
She was comfortable with $205 a month. She took the personal loan. She's now two years in, with about $4,200 left. She's been making an extra $50 payment sometimes, which will cut her payoff time down to around three years total.
So which is better? It depends on three things:
- How much you can pay per month. If you can pay aggressively during the 0% window, balance transfer wins. If you need a low, stable payment, personal loan wins.
- How long you need. Balance transfer only works if you can finish before the promo ends. Personal loan gives you a fixed term.
- Your credit score. You need decent credit to qualify for 0% cards or low-rate personal loans. If your score is under 650, you might not qualify for either.
Tara made the right call for her situation. You might make a different one. The only way to know is to run the numbers with your own payment amount. Use the calculators. Don't guess.
I will keep posting updates on this. Check back soon.
P.S. Tara paid off the loan last month — six months early. She sent me a screenshot of the $0 balance. I smiled. Cooper wagged his tail. It was a good day.