Does a Balance Transfer Always Make Sense When You Owe Money on Multiple Credit Cards?

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Juggling credit card balances? Before you rush to do a balance transfer, consider some alternatives. Here’s why. [[{“value”:”

As of 2024’s final quarter, Americans owed $1.05 trillion on their credit cards, says TransUnion. And you may be in the process of trying to pay off multiple balances yourself.

Juggling multiple credit card balances is no fun. Not only can it be stressful, but you run the risk of missing a payment accidentally and having your credit score take a big hit because of that.

As such, you may be inclined to do a balance transfer if you owe money on multiple credit cards and are looking for a way to consolidate your debt. A balance transfer might also mean getting to take advantage of a 0% introductory rate for a limited period of time, which could make your debt easier to pay off.

But while you might assume that a balance transfer is your best option in this situation, that’s not always the case. In fact, you may be much better off consolidating your debt into a fixed-rate loan and paying it off over time.

Why a balance transfer may not work for you

A balance transfer usually allows you to enjoy a limited period of time of no interest accruing on your debt. The problem, though, is that once that introductory period comes to an end, the interest rate on your balance has the potential to skyrocket.

Furthermore, most balance transfer offers limit that introductory period to under two years. You may get lucky and enjoy 21 months of no interest, or 18 months. But that may not be nearly enough time to get your balance whittled down to $0.

Also, there can be costly fees associated with doing a balance transfer. In fact, 3% is pretty common. But if you owe $10,000, you’re looking at paying $300 to do that transfer. Ouch.

Also, there can be limits on balance transfers that may not work for you. If you can’t move over all of your credit card debt, for example, then a balance transfer may not be worth it. After all, a big benefit of a balance transfer is consolidation. If you move over most of your debt but are still left with a $3,000 balance lingering on an additional card, you haven’t necessarily solved your problem the way you wanted to.

A fixed-rate loan may be a better bet

Clearly, balance transfers have their drawbacks. So you may want to consider a fixed-rate loan, like a home equity or personal loan, as an alternative to a balance transfer.

With these loan options, you’ll forgo the 0% introductory period you might get with a balance transfer. But you’ll also have a lot longer to pay off your debt.

So let’s say the interest rate on your balances now ranges from 18% to 24%. You might sign a fixed-rate personal loan at 8%. But you won’t only have 12 months, or 18 months, to pay off that loan. You might easily get five years, which gives you more breathing room because you’re guaranteed that 8% rate for that loan’s duration.

Also, a fixed-rate loan might make it possible to consolidate all of your debt. So logistically, it could make more sense.

Now just as there are fees usually associated with a balance transfer, there can be closing costs to put a home equity or personal loan in place. So you’ll need to compare the costs involved.

But all told, you shouldn’t assume that a balance transfer is your best choice when you’re looking to consolidate multiple credit card debts. A fixed loan may be a better option by virtue of the fact that you get more time to tackle your debt without having to worry about your interest rate soaring while you’re still in the process of paying it off.

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