If you are burdened with heavy debt, debt consolidation or balance transfer are some good options to manage your debt. These two methods will give you some respite from heavy interest rates and also get you some moratorium to repay the debt. 

Let’s look into these two methods in detail and understand which is the better option for you!

Debt Consolidation is simply the process of combining all your existing debts into a single loan. Debt consolidation gives you the benefits of lower interest rates, flexible repayment, and more. 

Balance Transfer is when you transfer your loan from one lender to another to get better interest rates, interest-free periods and conducive repayment terms. 

Debt Consolidation Pros & Cons



Get a lower interest rate on your new loan

Debt consolidation loans have a considerable amount of processing fees

Better management of debt by consolidating all your debt into one 

You may not get a lower interest rate if your credit score is not good

Allows you to plan a better repayment strategy

It may not be effective if your spending habits do not change


Balance Transfer Pros & Cons



Get 0% Introductory APR for a period of 12-18 months

The APR after the introductory offer period may be very high

Opportunity to boost your credit score if you make timely payments

Your credit utilization rate may be affected as you close down existing debts

Getting a balance transfer credit card can prove beneficial as you will have an open line of credit once you have repaid this loan

Balance transfer charges are generally in the 3-5% range

Is Debt Consolidation the better option?

Debt consolidation combines higher-interest loans, such as credit card bills, with lower-interest loans. It successfully lowers your monthly bill payments, resulting in a significant reduction in your outgoing monthly financial load.

You no longer have to pay multiple debt payments like credit card bills and loan EMIs each month; instead, you simply have to pay one loan payment each month. Because there is only one monthly loan payment, you are less likely to be late or miss payments.

When you consolidate your debts, you would most likely be charged an origination fee. An origination fee of 1% to 8% of the loan amount is charged by many unsecured personal loan companies. Some lenders may not charge origination fees, but they may only accept applicants with strong to exceptional credit.

Low interest rates and large loan amounts are not always guaranteed. You may only be able to get a loan with a high interest rate approved. Alternatively, the loan you've been authorized for might not be significant enough to cover all of your debts.

Additional Reading: Debt Consolidation Loans: How and When are they useful? 

Is a Balance Transfer better then?

A balance transfer is when you transfer high-interest credit card debt to a new credit card with no interest for a set period of time, usually 12 to 18 months. The number of debts you want to consolidate is one of the primary differences between debt consolidation and balance transfer. Balance transfers are used to pay off lower balances on one or two high-interest credit cards, whereas debt consolidation loans are frequently larger sums used to combine many different debt obligations.

Additional Reading: How to do a credit card balance transfer in India? 

You can get a 0% APR period for 12 to 18 months with a balance transfer, which can save you a lot of money on interest. You'll also have another open credit line once it's paid off, which can help your credit score. Some balance transfer credit cards even have no annual fee or come with bonuses like points or travel rewards.

How to decide between debt consolidation and balance transfer?

Though both the methods are equally beneficial for debt management, one has to carefully consider all the features before choosing between them. Here are some pointers to help you choose between the two: 

Calculate the actual monetary benefit you will achieve: Whether it is debt consolidation or balance transfer if the monetary benefit is not great, there is no point in going for it. Work out how much you are shelling out for your current loan and then see how much you will be saving on your new loan. If the difference is really beneficial, you should go for it.  

Consider the cost involved: Even if you get a good interest rate, you may have to pay processing costs with the new lender and foreclosure charges with the previous lender, among other things. It's a good idea to learn about these fees before deciding on a balance transfer so you can see if the transfer is truly beneficial. As stated earlier, debt consolidation has origination fees ranging between 1-8% and balance transfers have processing fees of 3-5%. Keep this in mind while making a decision. 

Understand the additional benefits that are offered: To entice you, the new lender may make several offers. Examine these deals carefully to see whether they are right for you, and then make the balance transfer. Many times, we buy a product because of its additional features, but we never use them. To avoid this, ask about the terms and conditions of the offers before making a selection. Debt consolidation may not offer you great benefits or features but a balance transfer credit card will give you offers like reward points and travel rewards. 

Carefully dissect all the terms & conditions: Both debt consolidation and balance transfers should be considered as new loans and hence they will have a fresh loan document, terms and conditions. Take the time to read over the entire terms and conditions of the new lender's program. Read the fine print to make sure you know what you're getting yourself into. This may help you avoid disappointments or unpleasant surprises in the future.


The above-mentioned points are just a gist of the various features of debt consolidation and balance transfer. However, the final decision solely depends on the kind of debt you have accumulated. If you have a smaller debt, a balance transfer to a credit card with an introductory 0% APR offer may be the best option—especially if it has a low balance transfer charge and a long enough promotional term that you can pay off the debt before the promotional rate expires.

A debt consolidation loan, on the other hand, may be a better option if you'll require several years to pay off a huge balance. You can be authorized for a higher loan amount with a low interest rate for the duration of the payback period.

Regardless of the strategy you choose, you must adjust your spending habits to avoid further debt accumulation and make it far more difficult to repay your transferred debt.


  1. Are balance transfer and debt consolidation the same?

No, they are different. A balance transfer is when you transfer your debt from one lender to another to get a lower interest rate. Debt consolidation is when you combine all your existing loans into one loan for easier debt management. 

  1. Will I lose my credit cards after debt consolidation?

Yes, debt consolidation will pay off all your credit card balances and close them off. 

  1. Can I use my credit card after the balance transfer?

Yes, you can continue using your credit card once you have transferred its debt to a different credit card. 

  1. Is it possible for my balance transfer to be rejected?

Yes, if your loan amount is higher than your eligible amount, it can get rejected. 

  1. How long will a balance transfer take?

Balance transfers usually take between 7-14 days.