Are balance transfers and consolidation loans similar?

Balance transfers and consolidation loans are similar in that they both simplify debt management by combining multiple debts into a single payment. They can help reduce the amount of interest you pay and improve cash flow by freeing up funds for other expenses. However, they differ in their structure and the types of debt they address.

Balance transfers are typically used for credit card debt, allowing you to move balances from one or more credit cards to a new card with a lower interest rate, often featuring lower promotional APRs for a limited time.

On the other hand, consolidation loans are personal loans that provide a lump sum, which you use to pay off existing debts, including credit cards, medical bills, or other unsecured loans.

Repayment terms also differ—balance transfers are tied to a revolving credit account and require you to pay off the balance before the promotional period ends to avoid higher interest rates, while consolidation loans have fixed repayment terms with predictable monthly payments over a set period, such as three to five years.