Finding yourself in a mountain of credit card debt feels overwhelming, you have multiple payments due and making the minimum payment doesn’t seem to put a dent in what you owe. There are many solutions for managing debt. Two popular ways to consolidate credit card debt is to get a personal loan or balance transfer credit cards. Both options compile your credit card debt into one, usually lower, payment. But what are the real differences between balance transfers and a personal loan? We have information that can help you decide what option could be better for your situation.
A personal loan is money lent to you by a financial institution, normally it is paid back with interest in fixed, monthly payments over a set term. An unsecured loan is issued based on the borrower’s creditworthiness and ability to pay. If the personal loan is secured, it means it requires you to put up items you own, such as your car or home, as collateral to qualify for the loan.
A balance transfer credit card is a type of card that allows you to transfer existing debt from one or more creditors to a new card. Often these kinds of cards offer a promotional introductory period where the interest rates are 0%. Making paying them off quickly more beneficial, and in order to maintain this promotional rate, you usually have to make at least the minimum monthly payments before the due date.
When consolidating debt think about the following things when comparing which option works best for your situation. With a lender, they will determine your monthly payment on a personal loan based on the amount borrowed, the term of the loan, and interest rate. Balance transfer cards have minimum monthly payments once a balance is accrued if you already know what you want to pay before you start looking at solutions, you may find it easier to choose an option. Knowing your repayment timeline ahead of time will help you choose the best option, if repaying in the promotional period for a balance card seems unlikely you may prefer a personal loan.
We advise that you take a look at all of the credit cards you currently have, taking into account how much you have spent and your card limits. With this information, you can devise a plan of action to tackle credit card debt. If you have questions about our debt management options, give us a call at (800) 835-3400. One of our Member Advisors can sit down with you and share solutions for consolidating your debt.