Consolidation loan or balance transfer?

If you're carrying balances on several credit cards, there are two common ways to simplify: a personal loan that pays the cards off, or a balance-transfer card that moves the balances onto one card with a promotional rate.

How a consolidation loan works

You borrow a fixed amount, pay off the cards, and repay the loan in equal monthly installments over a set term. The payment doesn't change, and there's a clear end date. It works best when the loan's APR is lower than what your cards charge.

How a balance transfer works

A new card offers a low or 0% introductory rate on transferred balances for a limited period, usually with a transfer fee. If you can pay the balance off before the promotion ends, it can be very cheap. If you can't, the remaining balance moves to the card's regular rate.

Questions that decide it

Can you realistically clear the balance inside the promotional window? Do you want a fixed payment and a firm payoff date? How large is the transfer fee compared with a loan's origination fee? Will you be tempted to run the cards back up once they're cleared?

Either way

Consolidation only helps if the new cost is lower than the old one and you stop adding new balances. Compare the full terms of any offer before you decide.