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Whether you have just the one line of credit or are balancing a number of different monthly debt payments, you might find yourself weighing up your need for a balance transfer credit card or a personal loan.
Taking advantage of either strategy could help you slash the interest rate on your debt, or even consolidate your debts into a single loan so you have fewer plates to juggle. Maybe your credit card balance has been well-managed for some time now, and you’re ready to take advantage of some of the additional advantages offered by your provider.
Enter balance transfer cards. Balance transfer cards typically appeal to consumers because they tend to have a low introductory offer, as low as 0 percent APR, for a specific period of time. Starting off with a neutral credit card balance, you can transfer a host of debt onto your card in a bid to take advantage of additional benefits.
Personal loans, on the other hand, are typically issued by banks, credit unions, and other non-traditional lenders at a much lower interest rate than that of a standard credit card. Typically, you’ll work to pay back the loan in monthly installments over a period of a few years until it is completely paid back; it is not uncommon, on the other hand, for people to never see their credit card balance return to green.
How can you know which option is best for you and your personal financial situation? We’re here to help.
Personal loans are great for consolidating high-interest debts or financing large expenses. They’re an especially good option if you have good to excellent credit, and feel confident that you can make monthly payments over the loan term.
Interest rates on personal loans can typically range from between 6% and 36%. Borrowers with good or great credit might be able to qualify for a personal loan at the lower end of this range, while those with poor to bad credit might be forced to sign on to higher interest rates. Borrowing limits on a personal loan can be quite high: up to $100,000 for qualified borrowers.
A personal loan is an installment loan, which means you get a lump sum payment into your bank account that you then repay via fixed monthly payments over a specific period of time. This period of time is typically between two and five years, but depending on how large a personal loan you are taking out, this might be longer.
Many online lenders now let you pre-qualify for a personal loan in order to see estimated rates, with no impact on your actual credit score. Take advantage of this feature to get a good idea of how much a personal loan might cost you in the long-run.
Ultimately, personal loans are a good option for consolidating debt or financing large personal expenses due to their low rates, high borrow limits and fixed repayment terms.
A credit card is a great option if you need to finance smaller expenses and expect to be able to pay off your credit card balance in full each month. It also helps significantly if you qualify for a 0% promotional offer.
Credit cards are an expensive form of financing if you fail to pay off your credit card balance each month or fail to qualify for a card with a 0% interest promotion from the outset. Credit cards typically have interest rates in the double digits, and a high credit card balance can dramatically impact your credit score.
A credit card counts as a revolving form of credit that allows repeated access to funds. Rather than getting a lump sum of cash, your credit card has a limit that you can charge up to each month. Minimum monthly repayments are usually about 2% of your balance, though it is best to avoid interest charges by being careful to pay your credit card balance in full by the due date.
Carrying higher rates and a high risk of burdening you with a high balance, credit cards are best designated for short-term financing strategies and purchases you expect to be able to pay in full, like daily and monthly expenses.
Still not sure if a personal loan or credit card balance transfer is for you? Ask yourself these questions to narrow it down.
At the end of the day, personal loans and credit card balance transfers are just two financial tools available to you as you work to consolidate your debts or decrease the interest rate on your debt. Before choosing a loan or card, be realistic about your current and expected future financial circumstances, the fees on the options available to you, and the long-term effects on your credit rating.
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