What Is The Difference Between Debt Consolidation And Balance Transfers For My Credit Card Debt?
It’s an epidemic!
Okay, maybe that’s a bit dramatic, but a lot of people are up to their ears in credit card debt. Think about it; how many people do you know who don’t have any credit card debt? If you know anyone (lucky you!) they may have just come out of debt. Credit cards are a way of life, and credit card debt comes with the package.
Two ways out
There are two main ways of getting yourself out of this kind of trouble:
- Debt consolidation
- Balance transfer
Both methods are intended to help you save money while handling your credit cards with high interest rates. However, they are quite different.
Balance transfers involve transferring debt from one credit card to another. Usually, you move the balance from the credit card with the higher interest rate to a card with a lower rate. Sometimes people get cards with 0% rates for a limited amount of time to get the highest possible amounts in savings.
Debt consolidation, on the other hand, involves paying off most or all your credit card debts using one card or even a loan with a lower rate. This option appeals to people who have several balances with high interest rates. The intention is to bring all your payments together to make a single payment at a lower rate.
So when you really think about it, as much as these two are different, you could say that you are consolidating your debt using a balance transfer to one credit card.
Which way to go?
First off, if you already have the color red featuring in your credit report, it may be too late for you to employ either option. These options are aimed at helping you pay off your debt much faster, not to get out near bankruptcy.
That being said, there are a few things you must consider for either option:
Watch out for the fees
Credit card balance transfers are not free even if you are moving it to a 0% rate card. There is a fee attached to the transferred balance. The same applies to the different debt consolidation options. So make sure you know how much you will pay for the lower interest rates.
Look at your credit score.
Whether you are going for that 0% rate card or looking for means of debt consolidation, you will need to have really good credit. You can check out your credit reports and credit score to see if you will be able to access any of these options. If your credit looks a little shaky, you can see how to work around it, or shop around for other consolidation options.
Beware of late payments.
Once you start on any of these options, you cannot afford to be late on any payments, literally. Late payments result in canceled deals which would then require you to commence interest repayments promptly, which is pretty expensive. You need to have a plan for where you will get the money to pay these lower interest rate options to avoid such penalties.