When multiple debts start taking a toll on you, you might begin to consider if there are easy ways to manage them. You want to pay your loan quickly but in an affordable way. Fortunately, there are two common ways to get out of debt –balance transfer and debt consolidation. But, which of the two loan repayment options suits you best?
When is a credit card balance transfer useful? It can be an effective tool for managing your debt if you are juggling numerous credit cards with a balance or if you have a balance on a high-interest credit card.
How to do a balance transfer
Simply apply for a new low-interest credit card. Once approved, let the credit card company know that you want to transfer the balance from your other credit cards to your new account.
If you have good credit, your credit card providers would assist you throughout the process of balance transfers. Just make sure that the new credit card has an ongoing APR which is lower than your existing credit cards. It’s because the purpose of the balance transfer is to lower your monthly payments, and of course, the interests. You can also look for a card with a 0% intro APR, and ask for the possibility of a rapid hike in interest after the introductory period.
Is balance transfer right for me?
Even if you have good credit, you may have to pay for a balance transfer fee, which is around 3% to 10% of your total outstanding balance. And, because you won’t be able to know the credit limit until you are approved, you’re not sure if the credit card can cover all your existing credit card debts. Thus, you may still end up carrying your high interest cards and a new card for balance transfer. Also, you cannot transfer your utility bills, car payments and other non-credit card debts to your new card. Balance transfer is only possible for credit card debts.
If you want to lower your monthly payments and enjoy the convenience of having to pay one creditor instead of many, debt consolidation will suit you better than balance transfer. With only one debt to pay off, your credit file may improve as you continuously pay off your outstanding debts. Debt consolidation is also a good option to those whose monthly expenses have risen already because of certain life events such as marriage, additional child in the family and medical expenses. If your income has been reduced or you lost your job, consolidating your debt can also help you meet your financial obligations while you’re still waiting for your cash flow to improve.
Which is more suitable to pay off debts-balance transfer or debt consolidation?
As a final point, that depends on the type of debt you owe because balance transfer is only limited credit cards. On the other hand, debt consolidation works for all types of debts. You can consolidate your credit card debts, auto loan, personal loans and so forth, in one monthly payment.
Overall, the key is to pay off your debts as soon as possible with as little interest as possible.
Learn more about balance transfer or debt consolidation loan and which is more suitable for you, by talking to one our friendly team members today!