Understanding Debt Consolidation vs Balance Transfer Matters
When you have an unusually high amount of debt, it becomes overwhelming quickly. When you are feeling the weight of the debt, you probably feel like you need to take some action. There are a few options available to you. Among the options available to you are debt consolidation and balance transfers.
Continue reading to find out the major differences between the two to determine which one is the right choice for you.
What Is Debt Consolidation?
When you are considering debt consolidation vs balance transfer, it is essential to note that a debt consolidation is a loan. A debt consolidation loan is one that you take with the intention of paying off some or all of your debts. You take out one consolidation loan to pay off all of your debts. This means you have one account and only one payment. This means instead of multiple payments; you are able to use of your monetary resources for one payment. This gives you the opportunity to have a lower interest rate instead of numerous higher interest rates. This helps free up extra money each month.
What Is Balance Transfer?
When thinking about debt consolidation vs balance transfer, it is just as important to understand the definition of a balance transfer. A balance transfer gives you the ability to transfer the existing debt to a credit card with a lower interest rate. This is often one credit card balance to another credit card.
Another option is to move money from your credit card to your bank account to pay off bills. Often, you can find a special promotion from credit card companies to encourage people to sign up as a new cardholder. Sometimes, an existing credit card may offer you a balance transfer option.
When considering debt consolidation vs balance transfer, it helps to understand the positives and negatives of both to help you make the best decision for yourself.
Pros Of Debt Consolidation
There are many benefits of debt consolidation.
A debt consolidation loan helps simplify all of your debts into one payment. This also means that you only have to worry about one payment per month.
A debt consolidation loan is a fixed rate, which makes it easier to budget each month.
When you have a good or better credit score, you can get better and lower interest rates. Unsecured loans may be slightly harder to acquire since you have no assets to secure your loan.
Cons Of Debt Consolidation
There are some downsides to debt consolidation of which you should know before making any decisions.
Consolidating your debt does not solve all of your problems. There is a reason why you require a debt consolidation loan, and it is essential to understand that you need to change your habits to ensure you do not get further into debt. If you miss payments, it will have a negative impact on your credit score. You must make sure that you can afford to make the payment each month.
When you have a secured loan and a longer amount of time to repay the note, it means that you pay more interest.
Pros Of Balance Transfer
There are also positives to choosing the balance transfer option.
These benefits include a zero percent to low percent interest rate. If you can get a zero interest rate, you can save a lot of money over the long term.
In addition, some credit cards often have other benefits in addition to a zero interest rate. For example, you may find credit cards that have rewards for purchases.
Cons Of Balance Transfer
There are some downsides to choosing the balance transfer route.
First, credit cards can have a high interest rate. The introductory rate of zero percent is usually only short term. Then, it goes back up to a much higher rate. It is critical that you know how long you keep the zero percent interest and what the rate is once it switches.
Second, there may be fees associated with a balance transfer, usually around three percent to five percent of the balance.
Third, there is no guarantee of the credit limit the credit card company will offer you or how much you will be able to transfer.
Fourth, applying for a new credit card can negatively impact your credit score.
Finally, there are often restrictions about what balances you are able to transfer.
How to Decide Between the Two
There is not one good answer to this question. The choice between the two depends on your own personal situation and how much debt you have. It helps to determine how much debt you have.
If you have a high amount of debt, it is likely that you want to consider a debt consolidation loan.
If you have a high amount of debt, a balance transfer is not likely going to work for you. Typically, a balance transfer has a low limit.
The more debt you have means that it will take you longer to pay off the debt. You may not be able to do that before the introductory period ends.
If you have a lower balance, primarily associated with credit card debt, then a balance transfer to a zero interest loan is most likely your best bet.
Need More Help?
When you have a large amount of debt and do not know what to do about it, you may need additional help. The Goalry Mall is available to provide you with some assistance when it comes to debt consolidation and loans. We have a wealth of knowledge and information that can help you with your decision between a debt consolidation loan or balance transfers. This may be a challenging decision for you, but we can help. Visit The Goaly Mall to find out more information.
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Conclusion
When you are facing an incredibly high mountain of debt, it can be a stressful and challenging time. At times such as these, it is essential that you understand the options that are available to you. Once you do, you are better able to make a sound decision that makes the most sense for you and your situation.
When you have any amount of debt, it can feel like you have a weight crushing you. The more debt you have, the more critical it becomes for you to be smart when paying it off. There are two ways to prioritize your debt. You can do that by the interest rate or based on how much you owe or the balance for each debt.