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When trying to pay off debt, lowering your interest rate can be a big help. And there are a few tools that offer this option, including balance transfers and personal loans.
Balance transfers involve transferring the existing debt balance to a credit card offering a 0% promotional interest rate for a specified period. 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 take out a personal loan, on the other hand, your rate will certainly not be 0%. However, it is likely to be 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 choice because you may be able to avoid interest altogether. But here is a circumstance where personal loans are the best option.
Here’s when a personal loan is a better choice than a balance transfer card for debt consolidation
Both personal loans and balance transfers can be useful tools for paying off debt. However, a personal loan is probably the best choice. if you are going to take a long time to pay off your loan. The promotional rate on a balance transfer card will only last that 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 go alone enjoy the 0% rate for about a year, although some cards offer it a bit longer. Once this period has elapsed, you will be required to pay the full interest rate on your credit card. And that could be very heavy, depending on the terms of the credit card.
You may plan to transfer the balance again at the end of the promotional rate, but this is not always possible. You may not be eligible for another balance transfer card. And even if you can move the debt again, you will have to pay additional fees to do so.
If you don’t want to deal with this uncertainty, you might prefer to go for a personal loan.
A personal loan gives you more certainty
When you are 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 increase after a certain number of months. Your lender will also tell you at the beginning the total amount it will cost you to pay off your debt. And because personal loans have a fixed repayment schedule, you’ll also know exactly when you’re done repaying the loan.
These are significant advantages over a balance transfer card. The 0% rate may exceed them if you are confident that you can pay off the balance in a short period of time. If not, it’s usually not worth trying a balance transfer. Instead, consider shop for personal loans. If you can avail it at a competitive rate, it may be your best bet to lower your interest charges and pay off your debt.
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