Balance transfer credit cards with a 0% annual rate might be a good option if you are looking to repay personal loan debt. Can you transfer personal loans to a balance transfer credit card?
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Personal loans can have high interest rates of up to 35.99%. This means that you could end up paying more than what you borrowed. It is possible to transfer a personal loan to a credit card balance transfer card. However, not all credit card issuers will allow this. Before you decide how to manage your debt, consider other factors such as balance transfer fees and offer periods. You can save money by using a balance transfer credit card if you do your research.
Can you pay off a personal loan with a balance transfer credit card?
You can transfer your high-interest debts to a credit card that balance transfers, which allows you to pay a lower APR. These cards offer almost two years of interest-free credit at 0% APR so that you can eliminate the risk of accruing interest.
Balance transfers are usually about moving balances from one card to the next, but you can also move personal loans to balance transfer cards, according to Stella Shon (credit cards writer at The Points Guy). Red Ventures owns The Points Guy, which is similar to NextAdvisor.
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Shon states that it is possible. “With the attractive 0% APR offers, many cardholders find it very appealing,” Shon said.
This may surprise you, since many companies don’t advertise the possibility of personal loans being paid off with balance transfer cards. Shon stated that balance transfers are for debt on existing cards and not personal loans. Balance transfers are not intended to be used for personal loans.
How to pay off a personal loan using a balance transfer credit card
It is possible to transfer a personal loan to a card with a balance transfer, but it works differently to moving a credit card balance. Matt Schulz, LendingTree’s chief credit analyst, said that it usually requires a balance transfer review.
He said that there were likely to be a few options for how a transfer works in transferring a personal loans. It can be done using a balance transfer check. This is what the cardholder would do to the lender for the loan they wish to transfer. It is possible to transfer funds online or by phone.
What are the pros and cons of transferring a personal loan to a credit card?
Be sure to weigh the pros and cons of transferring a personal debt to a balance transfer card credit card before you do.
Pro: It’s possible to save significant amounts of money
A smart move is to use a credit card that offers no interest to pay off a personal debt.
Schulz states that if you are eligible for a 0% balance transfer, it is possible to save some money on interest by moving your personal loan to a balance card. The amount you can save will depend on how large the loan is and the interest rate. However, you can still save quite a lot of money.
What can you save? Take this example.
Larry is eligible for a personal loan of $5,000 at 9% interest over a 3-year period. His current monthly payment is $159, with a total of $5,724.
Pro: It’s possible to become debt-free faster
You’ll save money and get out of debt faster if you pay off your debt during the introductory period. To pay his debt off within the promotional period, Larry would need to increase his monthly payments to $286.11. He would be able to pay off his debt 18 more months sooner than originally planned.
Pro: You Can Simplify Your Repayment
It can be difficult to keep track of all your payments and due dates if you have multiple debts, such as personal loans or credit cards. You can simplify your life by using a balance transfer.
Schulz stated that balance transfers are a great way to consolidate debts and streamline your finances.
Con: Balance Transfer Fees
Balance transfer fees are an important consideration when deciding whether a balance transfer is right. Balance transfer fees range from 3% to 5 percent and are determined based on how much you transfer. It could affect the effectiveness of your transfer depending on how much debt you have and what the fee is.
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Con: High APR after the Introductory Deal Expires
Credit cards generally have higher APRs that personal loans, but credit cards are more common. According to Bankrate, the average APR on personal loans was 10.28% at January 31. The average APR of credit cards with assessed interest was 16.44% during the same period.
Shon advises that balance transfer credit cards should be paid off within the initial period. A balance transfer credit card with high interest rates is a good idea. Otherwise, your debt will become even more exorbitant.
Con: Debt is not solved by a transfer
While a balance transfer can be helpful, it won’t fix the problem that got you in debt. You could end up worsening the problem and racking up more debt if you don’t address it.
Con: There may be additional restrictions and limitations
Some credit card issuers may not allow you use a balance transfer to pay off personal loans. Others may not allow you use the card to repay a loan from the bank.
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Shon explains that if you have a Citi loan, you cannot transfer it to a Citi creditcard. You will need to transfer the money to a non-affiliated or different bank.