If you're serious about getting out of debt, a personal loan offers a more structured and cost-effective debt management solution compared to balance transfer credit cards. Instead of juggling promotional rates and hidden fees, a personal loan provides stability, transparency, and the opportunity to take control of your financial future.
Do Balance Transfers Hurt Your Credit Score?
Impact on Credit Score
Balance transfers can affect your credit score in different ways:
- Short-term impact: Applying for a new credit card or loan results in a hard inquiry on your credit report, which may cause a small dip in your score.
- Long-term benefits: Reducing high-interest debt and making consistent on-time credit card payments can help you significantly improve your credit health over time.
A personal loan can help by lowering your credit utilization ratio—one of the most influential factors in your credit score. By paying off revolving debt, you reduce your utilization and demonstrate financial responsibility to creditors.
Another factor to consider is that sometimes credit card companies will reduce your credit limit after a balance transfer. If this happens, your credit utilization ratio may remain high, limiting the potential credit score benefits that often accompany a balance transfer.
Paying Off High-Interest Credit Cards Efficiently
Credit card debt can quickly become a bad habit due to high interest rates and compounding balances—just because you can afford to roll over debt doesn’t mean you should. To break free and pay off your balances efficiently, it’s important to explore strategies that minimize interest, consolidate payments, and make your money work for you.
Strategies for Debt Reduction
There are several ways to manage and pay off high-interest debt, but not all methods are equally beneficial:
- Debt consolidation loans: A personal loan, like those offered by BHG, consolidates multiple credit card balances into one predictable payment at a low interest rate.
- Home equity line of credit (HELOC): HELOCs may offer lower rates but come with higher risk as they require you to use your home as collateral.
- Promotional rate credit cards: Transferring balances to a new card with a promotional 0% APR offer can be tempting, as your credit card payments will be lower initially. However, these rates are temporary, and high fees often apply.
Let’s look at personal loans a little deeper as an example of how this strategy could play out. Switching from a $40,000 credit card balance at 24.74% APR to a personal loan at 12.44% over seven years could save you more than $24,000 in interest.* That’s a substantial financial advantage that not only reduces your debt burden but also provides peace of mind with predictable payments.
While consolidating credit card debt with a personal loan can be a smart debt management strategy, not all debts should be rolled into a loan. Here’s what to consider consolidating:
- Credit card debt: This is often the best candidate for consolidation because of its high interest rates, revolving nature, and compounding interest. By replacing multiple credit card balances with a single fixed-rate personal loan, you can reduce interest costs and establish a clear repayment timeline.
- Personal and unsecured loans: If you have multiple personal loans with different lenders and high variable rates, consolidating them into a single fixed-rate loan could lower your monthly payments and simplify your finances. You may also benefit from transferring your balances from a short-term loan personal loan to one with extended terms. For example, if your current personal loan is only a three-year term, you may benefit from extended terms that significantly lower your monthly payment by spreading your repayment over a longer period of time.
Think twice about consolidating:
- Student loans: Federal student loans come with unique borrower protections, such as income-driven repayment plans, deferment options, and potential loan forgiveness programs. Consolidating them with a personal loan means losing these benefits, making it a less favorable option. However, if you have high-interest private student loans, refinancing with a lower fixed-rate loan might be worth considering.
- Auto loans: Car loans generally have lower interest rates compared to credit cards or personal loans. Since they are secured by the vehicle itself, consolidating them into an unsecured loan could lead to a higher interest rate or longer repayment term, making the loan more expensive in the long run.
- Medical debt: Some medical providers offer interest-free or low-interest payment plans, so it’s important to compare these terms before consolidating medical bills into a personal loan. If your medical debt has a high interest rate, however, rolling it into a fixed-rate loan may help you pay it off more efficiently.
- Mortgage or home equity debt: Using home equity to consolidate credit card debt may offer lower interest rates, but it also means putting your home at risk. Unlike unsecured personal loans, missing payments on a home equity loan or HELOC could result in foreclosure.
By carefully evaluating the type of debt you’re consolidating, you can make an informed decision that maximizes savings while protecting your financial future.
Long-term Financial Planning
Eliminating high-interest credit card debt is a major financial victory, but staying debt-free is the real challenge. Without a solid long-term financial plan, it’s easy to slip back into old spending habits and accumulate debt again. True financial stability isn’t just about paying off what you owe—it’s about developing and maintaining smart money habits that support lasting success.
A sustainable financial plan requires ongoing discipline, awareness, and adaptability. It means identifying the behaviors that led to debt, creating a safety net for unexpected expenses, and consistently working toward bigger financial goals. Whether your objective is to remain debt-free, build wealth, or invest in future opportunities, long-term planning is essential for maintaining financial security and peace of mind.
By implementing smart financial habits, you can take control of your personal finances and avoid falling back into debt. Consider these key strategies:
- Identify spending habits that contribute to debt accumulation and make necessary adjustments.
- Regularly assess and adjust financial goals to stay on track and prevent slipping back into high-interest debt.
- Leverage tools like autopay so that you won’t miss regular payments.
- Build an emergency fund to cover unexpected expenses and reduce reliance on credit cards during financial setbacks.
- Invest in financial education to improve money management skills and make informed financial decisions.
- Monitor your credit with the major credit bureaus and keep track of your FICO score.
With the right approach, you can break the cycle of debt and build a strong financial foundation for the future.
Making Informed Financial Decisions
Reaping the Benefits of a Non-Traditional Balance Transfer
Choosing a personal loan instead of a traditional balance transfer credit card can offer significant financial advantages:
- Lower interest charges, meaning more savings over time.
- Lower monthly payments and fewer due dates to manage, allowing better cash flow management.
- A structured payoff plan, which can help you eliminate uncertainty and prevent prolonged debt cycles.
Staying Committed to Financial Growth
Achieving financial health requires ongoing effort. Continually reassess your finances, explore ways to optimize debt repayment, and commit to sound financial habits. Small, strategic moves today can lead to lasting financial stability.
How BHG Can Help with Balance Transfers
At BHG Financial, we believe financing should fit seamlessly into your life and goals. That’s why we offer personal loans tailored to your needs, with amounts up to $200,0001 and flexible terms of up to 10 years. 1,2 Consolidate your high-interest debt with a BHG loan designed to help you move forward confidently.
Plus, you’ll enjoy dedicated, U.S.-based concierge service that works around your schedule—because your time is valuable. Ready to see what’s possible? See your personalized offers in just seconds.