Debt consolidation - or balance transfer?
Debt consolidation loans have given many borrowers a good way of simplifying their budgets and making their finances that bit easier to deal with. But these days, a lot of people are using balance transfer credit cards to do much the same thing.
At a basic level, the two are quite similar: they both allow people to consolidate multiple debts into just one debt, whether that’s a new loan or a balance on a new credit card. They also both give borrowers a chance to rethink how quickly they’ll be able to repay their debt.
But in other ways, they’re very different. A few things to keep in mind if you’re thinking of taking out a debt consolidation loan or transferring your credit card debts to a single card…
Debt consolidation loan
You could pay all your debts off in one go if you took out a new loan and used it to pay them off. As with loans of all kinds, you should only do this if you’re sure you can afford to stick to the repayments all the way through, right up to the day the last one’s been made.
A lot of people consolidate their debts like this so they can reduce their monthly payments as well – if they can arrange a longer repayment term, each monthly payment can be a fair bit smaller, since they’re repaying the debt more slowly. It’ll cost more in the long run if they do this, though, as interest will have longer to build up. If you want to know more about debt consolidation loans and other approaches to debt, you could visit DebtAdviceNow.
Balance transfer credit card
If you’re carrying a few different credit card debts, it might make sense to transfer them all to a single card. A lot of balance transfer credit cards give people quite a lot of time (up to two years, in some cases) in which they’ll pay no interest on the transferred debt at all.
Even though it comes with a balance transfer fee, this can still save people a lot of money. It can also give them a real incentive to make larger monthly payments than just the minimum, so they can be confident their debt will be gone before the interest starts accruing again.