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Personal Loan or 0 Percent APR: Which Option is Best for Debt Consolidation?

Huge amounts of credit card debt can be overwhelming. You may have sufficient income each month to pay your mortgage, utilities, and other necessities, but little left to get rid of your debt.

You’re not alone. Credit card debt in the United States was about $890 billion in the first quarter of 2020 alone, as per Statista. Two of the most used techniques to pay off credit card debt are a personal loan or opening a 0 percent ARP credit card. However, which method is best for consolidation?

Personal Loans for Debt Consolidation

Getting rid of debt with a personal loan has its advantages and disadvantages. Some lenders have stricter requirements on who does and does not qualify for a personal loan because of the pandemic. Others have come up with small-dollar loans at low rates if you’ve suffered financially.

​Even so, if you aren’t required to have good to excellent credit and a strong financial record, it may be a bit difficult to qualify.


You’ll have a fixed repayment timeline. ​Personal loans have a rigid repayment term that can range from one to five years. That makes it simpler to budget and plan your payoff date in advance.

You can lock in a low-interest rate. Annual percentage rates (APRs) for personal loans differ from 6 percent to 36 percent. Remember that rates can rise even if you were given an initial teaser rate when you got the loan. 

You can rest assured with an unsecured loan. The majority of personal loans are unsecured, which means there is no collateral needed to ensure the loan. Some are, however, secured, so if you miss on payments, you could lose your collateral.

There’s the potential to enhance your credit score. Using a personal loan to consolidate your debt can help decrease your utilization rate and raise your credit score if you pay the money on time.


You may pay a higher interest rate. Average APRs on personal loans are around 6 percent to 36 percent. If you have good credit, your APR will probably be less, but if you’ve missed payments in the past, you may be requested to pay a higher interest rate, somewhere between the 29 percent and 35 percent range.

You might end up paying fees. Some lenders ask for processing or origination fees along with your personal loan. These changes can add in gradually, increasing the amount you’ll owe on loan.

You might be asked to put up collateral. ​The majority of personal loans are not secured, which means no collateral is required to qualify. Still, some lenders ask for a collateral as a guarantee, and if you miss your payment, they might take your collateral.

0 Percent APR Cards for Debt Consolidation

Using a 0 percent APR card in order to pay off your debt or balance transfer can be a better option than a personal loan. However, it’s not always the case. If you have accumulated debt on multiple cards and need time to get rid of it, a credit card with a temporary 0 percent, APR might not be the best solution. If you, though, have a plan to pay off the debt quickly or want funds via a revolving line of credit, a low or 0 percent credit card might be a good option.


You’ll get low or 0 percent interest for a promotional period. ​During the promotional timeframe, you will need to pay low interest or 0 percent interest on all transferred balances and new purchases. 

You will be able to consolidate your debt. A low or 0 percent interest card allows you to transfer balances from high-interest cards so you can get rid of your debt by paying one monthly amount.

You might earn rewards. With a few 0 percent credit cards, you can also earn rewards and other perks.

It may be perfect for a large purchase. If you want to make a large purchase, a 0 percent interest card may be a great option to consider if you plan to pay off the balance before the temporary timeframe ends.


Your low or 0 percent APR is temporary. In case you pay off the debt before the promotional period ends, this is a great option; otherwise, you will gather interest.

You might have to pay fees. This option might require you to pay a balance transfer fee that can go up between 3 percent to 5 percent. You should also consider other fees that may add up.

You might not qualify. If you have good to excellent credit, your chances to qualify are good. On the other hand, if your credit is less than stellar, you might not be considered, more so during the pandemic.

You might forfeit your 0 percent APR. If you ever make late payments of miss them, you are at risk of losing your 0 percent APR and end up being request to pay high interest.

Personal Loan vs. 0 Percent APR – Which One Should You Choose?

Overall, using a personal loan to pay off your debt can be a good solution if it comes with a low APR and decent terms. Most personal loans are unsecured, and you can typically lock in your rate.

​However, low interest or 0 percent loan may be the ideal option if you plan to get rid of your debt quickly. You’ll pay no interest throughout the promotional period, but there is the chance you’ll be asked to pay high fees.



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