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If you have debt, you’re likely trying to figure out the easiest way to pay it down. After all, it’s not something you want looming over you forever. Fortunately, there are options out there to help you eliminate your debt, such as balance transfers and personal loans. Choosing a debt relief option can be challenging, but if you understand the nature of your options and the factors influencing your choices, you can adequately make a decision that works best for you.
To help you understand which option is more suitable for you, it’s important to understand how the two options work.
A balance transfer credit card takes your existing credit card debt and transfers it to a new card that has a special interest rate for a set period of time. Usually, rates can go as low as 1.99% and terms can last anywhere from 3 months to a year, on average. By transferring your balance over to your balance transfer credit card, you can take advantage of a lower rate and pay down your debt within this time frame to save money.
However, once the introductory period ends, the rate will jump, often higher than other conventional credit cards. For this reason, it’s important that you make every effort to pay down your balance within the introductory period before your rate increases.
Balance transfer credit cards let you transfer high-interest debt from another credit card, but some creditors may also allow you to move other types of debt, like car loans, personal loans, or student loans. Be sure to find out if this is possible by contacting your credit card issuer.
Balance transfer cards have a one-time transfer fee based on the total debt being transferred as well. Judgment should be exercised to determine if the transfer fee is worthwhile based on the offer you got with the balance transfer card.
The funds from a personal loan can be used for a variety of purposes, including covering the cost of home renovations, college tuition, and car repairs. A personal loan can also be a good option for consolidating high-interest debt, especially if you can secure a low-interest rate.
With a personal loan, you apply for a specific loan amount and pay it back over the loan term, including interest and applicable fees. Typical loan terms for personal loans range from 6 months to 5 years, and loan amounts can range from $500 to $35,000, on average.
Balance Transfers | Personal Loans | |
Loan Terms | 6 – 18 months | 6 months to 5 years |
Loan Amounts | Up to credit limit | $100 – $50,000 |
Interest Rates | – 0% during the introductory period – At par or higher than traditional credit cards (16.99% – 22.99%) | 2% – 47% |
When to Use | When you want to repay high-interest credit card debt within 6 to 18 months | – When you want to consolidate a variety of high-interest debts or cover a large expense. – You require a longer period to repay it. |
Repayment Terms | Pay off entire amount within introductory period | Fixed installment payments over specified loan term |
Balance transfers and personal loans have their own unique advantages and disadvantages. Those advantages and disadvantages can work in your favour, so long as you analyze your situation to determine the best option for yourself. Be sure to fully understand your finances before considering the factors below in order to make the best decision possible.
There are plenty of perks to a balance transfer, though there are also some drawbacks to consider:
Like balance transfers, there are a handful of pros and cons to personal loans to consider before opting for this financial product:
When comparing the two options, it’s important to consider the costs of both options.
Balance Transfer | Personal Loan | |
Loan Amount | $10,000 | $10,000 |
Interest Rate | 3.99% | 9% |
Term | 12 months | $24 months |
Monthly Payment | $851.50 | $456.85 |
Total Paid | $10,218 | $10,964.4 |
Total Interest | $218 | $964.4 |
Both a personal loan and a balance transfer can affect your credit in different ways.
Balance transfers and personal loans serve different purposes. Before you apply for one, consider your specific needs.
If you currently carry a high-rate credit card balance and wish to transfer it to a balance transfer credit card, your first step is to contact the credit card issuer. You’ll need to provide them with relevant information regarding the balances you want to transfer.
There are a couple of common ways to request a balance transfer from a credit card provider:
There are a lot of factors to consider when choosing between a personal loan and a credit card balance transfer. It’s important to remember that everyone’s debt situation is unique, you need to look at your offers, costs, total debt, and personal preferences among many other factors to determine if balance transfers or personal loans are ideal for you.
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