Find out how to decide which debt settlement tool is best for you.
When you’re trying to pay off debt, lowering your interest rate can go a long way. And there are a few tools that provide that option, including balance transfers and personal loans.
Balance transfers involve transferring your existing debt balance to a credit card that offers a 0% promotional interest rate for a specified period of time. Most balance transfer cards require you to pay a small balance transfer fee, but the 0% rate still makes this option very attractive. If you get a personal loan, on the other hand, your rate will definitely not be 0%. However, it is likely lower than the standard credit card APR or the rate you will get with many other types of loans.
In some cases, balance transfer cards may be the best option because you may be able to avoid interest altogether. But here is a circumstance in which personal loans are the best option.
This is when a personal loan is a better option than a balance transfer card for debt consolidation.
Personal loans and balance transfers can be useful tools to pay off your debts. However, a personal loan is probably the best option if it is going to take a long time to pay off. The promotional rate on a balance transfer card will only last so long, and if you need more time, a personal loan might be the way to go.
In many cases, when you transfer a balance, you will only enjoy the 0% rate for about a year, although some cards offer it for a little longer. Once that time is up, you will be stuck paying the full interest rate on the credit card. And that could be very heavy, depending on the terms of the credit card. You may have plans to roll over the balance again when the promotional rate ends, but this is not always possible. May not qualify for another balance transfer card. And even if you can move the debt again, you will have to pay another fee to do so.
If you don’t want to deal with that uncertainty, you may prefer to opt for a personal loan.
A personal loan gives you more certainty
When you get approved for a fixed rate personal loan, you will have the same interest rate for the life of the loan. Your monthly payments will not change and your rate will not go up after a certain number of months. Your lender will also tell you up front the total amount it will cost to pay off your debt. And since personal loans have a fixed repayment term, you will also know exactly when the loan will be paid off.
These are significant advantages compared to a balance transfer card. The 0% rate may exceed them if you are sure you can pay the balance in a short time. If that’s not the case, it is usually not worth the risk of a balance transfer. Instead, consider looking for personal loans. If you can qualify for one at a competitive rate, it may be your best option to lower your interest costs and pay off your debt.