How to decide between a using personal loan or a 0% APR card to get out of debt

The Wells Fargo Platinum Card is no longer available on Select. Please visit our list of best balance transfer cards and best Wells Fargo credit cards for alternative options.

If you're struggling with a lot of credit card debt, using a personal loan for debt consolidation may seem like a silver bullet.

One of the most talked-about benefits of using a debt consolidation loan is that it simplifies your payments. Instead of making payments to a handful of credit card accounts with variable APRs, you can pay them all off with a personal loan and then repay the new lender a fixed amount each month.

However, the biggest question to ask yourself when considering a debt consolidation loan, according to Shanté Nicole Harris of Financial Common Cents, is this: How much will you actually save on interest?

Harris argues that doing a balance transfer with a zero-interest credit card is a better option if you can qualify for such a card. But since a lot of major card issuers including Capital One, Discover and American Express, have pulled back on their balance transfer offers in light of the economic recession — this option may not be available to all consumers.

Below, Select spoke with Harris about how to choose between a personal loan or a 0% APR credit card when you want to pay off high-interest debt.

Harris, who paid off over $50,000 of debt between 2015 and 2019, is a big proponent of using balance transfer credit cards over personal loans to pay off debt. With limited-time promotional 0% APR, balance transfer cards allow you to pay zero interest on existing debt for up to 21 months. This can easily save you hundreds in interest payments.

Depending on your situation, you may also be able to transfer more than one credit card balance to the new card (as long as the total doesn't exceed your credit limit), and you can even sometimes transfer a family member's balance to help them out.

Some of the best no-interest credit cards that offer balance transfers are the Wells Fargo Platinum card, the Citi Simplicity® Card (see rates and fees) and the U.S. Bank Visa® Platinum Card.

However, balance transfer cards typically require good to excellent credit, and they do have other limitations. If you have a lot of debt, it may easily exceed the balance transfer limit (which is often lower than your actual card limit), leaving you with another extra credit card to keep track of. Most cards also charge a balance transfer fee of 3%, unless you opt for a no-fee alternative like the Wings Visa Platinum Card.

You can use a personal loan to simplify paying off your credit cards. But there are other benefits to consider.

Typically, personal loans have a lower fixed-rate APR. This means that your interest rate will be locked in and you'll pay the same monthly amount until the loan is paid off. Loan terms can range from just a few months to upwards of three years. Longer-term lengths usually come with higher interest fees.

Unlike credit cards, which are revolving credit, personal loans are a form of installment credit. When you finish paying off the personal loan, you're finished for good. A credit card's APR, meanwhile, will jump to the standard purchase APR once the introductory no-interest period is over, and you'll still be able to make purchases with the card even after it's paid off. (We recommend keeping your credit utilization at no more than 10% to 30% and paying it off every month to avoid more debt.)

Getting a personal loan is also sometimes easier than a credit card, something to note if you have a fair or average credit score, especially as card issuers are making it harder to get approved for credit cards. A number of loan lenders, both brick-and-mortar banks and online peer-to-peer platforms, make borrowing available for a wide variety of consumers. 

While personal loans are convenient, Harris argues that you should first make sure a loan will actually save you money.

"Sure, there is the convenience of making one monthly payment, but it's not really a smart move if the interest on your new loan is going to be higher than your current card," she says. 

Choosing a card with an introductory 0% APR is the best way to save on interest, but if you don't qualify for this option, or if you need a longer timeline to pay off your debt, you'll want to shop for a low-interest personal loan.

At their current rates, consumer credit cards average at about 16.6% APR according to the Fed's most recent data. Meanwhile, the average APR for 24-month personal loans is 8.73%.

Hypothetically, if you had $10,000 worth of credit card debt on a card with an APR of 16.65%, you would pay a total of $1,751.15 in interest if you paid it off over two years (according to Experian's APR calculator). If you took out a personal loan with 8.73% APR, you would pay $854.55 in interest over the same two years. This would be a savings of $896.60.

But just because most personal loans offer lower interest than credit cards doesn't mean that every personal loan will. LightStream, a popular online lender under SunTrust Bank, advertises a range of APRs between 5.95% and 19.99% depending on amount you are borrowing, the length of your loan term and your credit history.

"Remember you also have to qualify for the loan that you're trying to get," advises Harris. Most lenders allow you to perform a soft inquiry and find out if you are preapproved, and there are even some third-party websites, like LendingTree, that help you compare offers.

Select has a widget where you can put in your personal information and get matched with personal loan offers without damaging your credit score.

A personal loan can help you get out of debt faster if the interest rate is lower than your credit card. While simplifying your monthly payments has its merits, the biggest reason to consider a personal loan is if you can get a lower interest rate than what you are currently paying.

If you have good credit or higher and a moderate amount of credit card debt, consider applying for a balance transfer credit card with a promotional 0% interest period, unless you need more time to pay off the debt.

Information about the the Wells Fargo Platinum Card and Wings Visa Platinum Card has been collected independently by Select and has not been reviewed or provided by the issuer of the cards prior to publication.