Can I use a balance transfer credit card to pay off a personal loan?

A balance transfer credit card allows you to transfer existing debt, usually from another credit card, to a new card with a low or 0% interest rate for a fixed introductory period. This can help reduce interest costs and pay off debt faster.

While these cards are typically used to consolidate credit card debt, some credit providers may allow you to transfer a personal loan to a balance transfer credit card. This means you could save money on interest and potentially pay off your loan sooner—provided you manage your repayments effectively.

Compare personal loans

Cardholders typically use balance transfer credit cards to pay off their existing credit card debts by shifting to a lower interest rate for a fixed period. However, a handful of credit cards may let you balance transfer a personal loan to pay it off faster without any interest charges during the introductory period. Citi Australia is one such credit provider that may allow you to balance transfer your personal loan to a credit card.

Yes, a balance transfer card usually comes with a transfer limit that’s related to your approved credit limit. When applying for a balance transfer, the credit issuer assesses your income and expenses and reviews your credit history to determine your maximum credit limit. You are generally allowed to transfer debts not exceeding 80-95% of your new card’s approved credit limit.

Transferring a personal loan to a balance transfer credit card can offer several advantages if managed carefully.

1. Save money on interest charges

The main benefit of using a balance transfer credit card is a chance to save money on interest charges by moving your debt to a low or 0% introductory interest rate. This could help you pay off your personal loan faster, as more of your repayments are applied towards reducing the principal due to lowered or no interest charges during the introductory period.

2. Pay off debt faster

With no or reduced interest eating into your repayments during the introductory period, you could potentially pay off your personal loan sooner.

3. Simplify debt repayments

If you have multiple debts, transferring them to a single balance transfer credit card may make repayments more manageable, as you’ll have only one monthly payment instead of several.

While transferring a personal loan to a balance transfer credit card may seem like a smart way to save on interest, it comes with several risks and potential downsides.

1. High revert interest rate 

A balance transfer credit card is typically only helpful if you plan to pay off the full amount before the end of the balance transfer period. If you fail to do so, you are likely to be hit with a high revert rate, which is the interest rate on your card once the introductory period is over. This revert rate could be even higher than what you were paying on your personal loan previously, making your debt more expensive in the long run.

2. Shorter repayment period

While personal loans come with structured repayment plans over several years, a balance transfer credit card typically offers zero or low interest for a much shorter period. If you can’t clear the transferred debt within this time, you may end up paying more in interest than you would on your original loan.

3. Risk of accumulating debt

If you find it hard to stick to a budget or tend to shop impulsively, it’s easy to continue making only the minimum repayments on the balance transfer card while accumulating more purchases on it. This could make your financial situation worse than ever, as the unpaid balance will start accruing interest at the revert rate. 

4. Balance transfer fees

Some credit cards charge a one-time fee for processing a balance transfer, which can be up to 3% of the total debt you transfer. While some credit cards don’t charge any balance transfer fee, it’s always worth reading the product disclosure statement to check for any hidden fees that could add to your costs.

5. Credit limit restrictions

Balance transfer credit cards usually limit how much debt you can transfer, typically allowing only 80-95% of your approved credit limit. If your personal loan balance is higher, you may not be able to transfer the full amount, leaving you with two debts to manage instead of one.

If you've decided to transfer your personal loan to a balance transfer credit card and have found a suitable option, the next steps are simply about providing the necessary details. When applying for the balance transfer credit card, you'll typically need to enter information about the debt you want to move, including details of your personal loan.

Once your application is approved, you can close your personal loan account and start repaying the debt on the new card. However, it's important to aim to clear the balance within the low or zero-interest period. If not, you could be charged a high revert rate once the introductory period ends—potentially even higher than the interest rate on your original personal loan.

Transferring apersonal loan to a balance transfer credit cardcan be a cost-effective strategyif you canpay off the balance within the low or zero-interest period. It allows you to save on interest and repay debt faster,but comes with risks such ashigh revert rates, transfer fees, and the temptation to spend more. If you’re disciplined with repayments and confident in clearing the debt within the promotional period, it could be a smart move. However, if there’s any risk of missing payments or carrying a balance beyond the introductory period, sticking with a personal loan may be a safer optiondue to its fixed repayment terms and lower long-term rates.

While a balance transfer credit card can help you consolidate debt or save on interest charges, it may not be the best solution if you’re struggling financially. If you’re considering a balance transfer due to financial difficulties, it may be worth reassessing your options. Seeking advice from a financial counsellor can help you manage your debts more effectively. Additionally, if your circumstances have changed, speaking with your lender about hardship options may provide relief, allowing you to stay on top of repayments and avoid defaulting.