Inevitably many people find themselves stuck in a morass of debt before they know it and have to endure complete misery due to the stress of having to make monthly payments that they can’t afford. Therefore, any mechanism that promises to lower the rate of interest or make the monthly payment more affordable becomes lucrative. Balance transfers and consolidation loans top the popularity charts for repaying credit card dues and personal loans. A quick glance to find out which route is the best:
Credit Card Balance Transfers
Finding a 0% or low-interest rate credit card can be difficult and will depend on your credit score. For a limited period, you can make your interest cost vanish and wind down your dues at a faster rate as the monthly payment comprises only the principal. Balance transfers are especially attractive when you know that you can pay off the dues in the period in which the zero or low-interest rate is applicable.
The extent of your benefit, however, depends on the fee that is charged for initiating the balance transfer, as also any annual fee of the new card. If these charges are more than the saving in the interest, it does not make sense to go in for a balance transfer. Keep in mind that the credit card acquisition will negatively impact your credit score; however, the decline in the credit utilization ratio of the other cards will act to boost your score. Most importantly, you will need to curb your spending habits, otherwise, you will end up in a debt trap that’s impossible to get out of.
Debt Consolidation Loans
Instead of opting for a limited period relief that’s given by a balance transfer scheme, you can choose to restructure your debt by taking on a debt consolidation loan to pay off your existing loans and card dues. Depending on your credit score, you will invariably be able to get a lower rate of interest than that typically charged by credit cards and also an opportunity to make your monthly payment more affordable by extending the repayment period from online lenders like Nationaldebtreliefprograms.com.
This route is especially viable when your debt is too large to be eliminated in the limited time offer given by balance transfer schemes. You need to examine the net benefit after taking into consideration the difference in the rates of interest and the impact of any fee, by whatever name, charged. You can get better interest rates if you offer collateral to secure the debt. The new loan will hurt your credit score in the short-term, however, in the long-term; the credit score will improve as you become regular with the repayments.
Essentially, the decision of using a balance transfer or a debt consolidation route to manage debt will depend on the amount of the debt and your repayment ability. If you can repay all the dues within the promotional offer window, then opt for a balance transfer; otherwise go in for a debt consolidation loan to wind down your debt over a longer period of time.