Debt consolidation vs balance transfer: Which is best for you?
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If you’re dealing with multiple debts, you might be looking for ways to make repayments more manageable. Two common options are debt consolidation and balance transfers. Both aim to help you manage your finances, but they work in different ways.
In this guide, we’ll explain:
- What debt consolidation is
- What a balance transfer is
- The key differences between them
- What you may want to consider when deciding which option suits your situation
By the end, you will hopefully feel more confident about which option, if either, could work for you.
What is debt consolidation?
Debt consolidation means combining multiple debts into one loan. Instead of making several payments each month, you will only have to make one. This could make your finances easier to manage.
Loans may be used to consolidate debts like:
- Credit cards
- Personal loans
- Overdrafts
With a debt consolidation loan, you borrow enough to pay off your existing debts. Then you repay the new loan over an agreed term.
The main goal of debt consolidation is to make your monthly outgoings more manageable. But it could potentially also help you get a lower interest rate or reduce your monthly payments. Remember that extending lending over a longer term could cost more overall, even if it does reduce monthly payments.
What is a balance transfer?
A balance transfer involves moving debt from a credit card to a new card or bank account.
Usually, people transfer their balance to a credit card with a lower interest rate. Many providers offer 0% interest for a set period. This means you won’t pay interest for a limited time. Instead, your repayments go towards clearing the balance. However, if there is a balance left at the end of the 0% period, the account will then revert to the card’s standard interest rate APR.
Balance transfers are typically used for credit card debt only. They don’t generally cover other types of borrowing like loans or overdrafts. However, some credit card providers allow for a transfer direct to your bank account. This is often called a ‘money transfer’.
You’ll usually pay a transfer fee. This is often a percentage of the amount transferred, and this is added to the balance you transfer over.
What is the difference between debt consolidation and balance transfer?
While both options aim to help you manage debt, they work in different ways.
Debt consolidation |
Balance transfer |
| Combines multiple types of debt into one loan | Moves credit card debt to a new card |
| May involve secured or unsecured borrowing | Requires discipline to clear the balance before interest applies |
| Has either fixed or variable monthly repayments over a set term | Often includes a temporary introductory rate, e.g., a 0% interest period |
| Could reduce monthly payments. Fees may also apply. | Usually includes a transfer fee |
Debt Consolidation: things you may want to consider
Debt consolidation may offer several benefits:
- One monthly payment
- Easier to manage finances
- May reduce your interest rate
- Could include different types of debt
But there are also some things to know that you may consider to be a downside:
- You could pay more interest over time if the term is longer
- If you take a secured debt consolidation loan, it may put your home at risk if you miss payments
- Fees may apply
- It doesn’t reduce your debt, just restructures it until it’s paid off
- If you take out more or reuse credit facilities after consolidating, you may end up in the same position again.
For more information on debt consolidation and whether it might be a good option for you, see our guide: Is debt consolidation a good idea?
Balance Transfers: things you may want to consider
In the right situation, balance transfers may be helpful:
- A lower or 0% introductory interest rate for a set period
- Simple to set up
- Keeps everything on one card
However, you may also want to consider:
- Transfer fees often apply
- High interest rates may apply after the offer ends
- If you do not keep up with repayments and/or if you use the card for more purchases, you may find this cancels out the benefit.
- If you don’t clear the balance during the 0% interest period, it could become expensive.
When might you consider debt consolidation be a better option?
Debt consolidation may suit you if:
- You have multiple types of debt
- You want a single monthly payment
- You need longer to repay what you owe
- You’re struggling to manage several creditors
You may consider this the better option if your credit score makes 0% balance transfer offers harder to access.
Using a loan to consolidate debt could provide structure and stability. This may be beneficial for you if your finances feel difficult to manage.
However, you may find it useful to consider whether you can afford the repayments over the full term before deciding. You could end up paying more interest over time if the term is longer.
When might you consider a balance transfer be a better option?
A balance transfer may suit you if:
- Your debt is mainly on credit cards
- You can repay the balance within the introductory period
- You’re confident you won’t add more debt
- You qualify for a competitive offer
A balance transfer may be a cost effective way to reduce interest, but it requires discipline. You could find yourself in more debt if you don’t repay the balance within the 0% period. Also, missing payments or exceeding your limit could end the 0% offer early.
Things you may find useful to consider before choosing
There are some key questions you may find beneficial to ask yourself before deciding between debt consolidation or a balance transfer.
- How much debt do I have?
- What type of debt is it?
- Can I afford the monthly repayments?
- How long will it take me to repay?
- What is the total cost, including fees and interest?
It’s also worth checking your credit report. This may affect the options available to you.
Try not to rush your decision. The right choice should support your long term financial health.
So, which option is best for you?
Both debt consolidation and balance transfers may be used to help you manage your finances. But they are not one size fits all solutions.
Debt consolidation offers structure and flexibility across different types of borrowing. A balance transfer may help you save on interest in the short term.
The best option depends on your circumstances, your goals and your ability to repay. You might even decide that neither option is quite right for you.
If you’re unsure, it may be helpful to speak to a financial adviser before deciding. You can also get free debt advice from organisations such as MoneyHelper, StepChange or National Debtline.
Consider a debt consolidation loan from Evolution Money
If you’re a homeowner looking to consolidate debt, a debt consolidation loan from Evolution Money could be an option.
We offer secured debt consolidation loans of up to £105,000, with repayment terms from 3 to 20 years.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 to 70. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Does debt consolidation or balance transfer affect your credit score?
In the short term, your credit score may dip due to a new credit application. But as long as you make repayments on time, it shouldn’t negatively affect your credit score in the long run. However, should you take out several debt consolidation loans over a short space of time, this may impact your credit score
You can read more about this in our guide: Can debt consolidation affect your credit score?
What happens when an introductory, low or 0% balance transfer ends?
Once the promotional period ends, interest will usually be charged at the standard rate. This could be significantly higher. That’s why you may find it important to have a plan to repay the balance before this happens.
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99 for 179 months and then a final payment of £335.79. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
