Paying off a high interest debt can be daunting, but luckily there are some options to help get you out of debt. If you are reading this article, you have probably heard of balance transfer credit cards and debt consolidation loans, and are wondering which of these two might be more suitable for you. In this article, we would look at both Balance transfer credit cards and Debt consolidation loans to help you decide which option best suits your needs.
What is a Credit Card Balance Transfer?
Credit card balance transfer offers allow you to transfer your existing credit card debt onto a balance transfer credit card and repay the balance transferred at a much lower interest rate of as low as 0% for about 6 to 24 months, although some balance transfer offers can last for the entire duration of the balance transferred. Balance transfers are great if you are struggling to pay off your credit card debt as they gives you the opportunity to focus on paying off the actual loan rather than most of your repayments going towards paying off the interest incurred.
Advantages of a Credit Card Balance Transfers
One of the great advantages of a credit card balance transfer offer is its very low interest rate which is very rare to get with other forms of loans, especially if the loan is unsecured. What’s more, some credit card balance transfer offers allow you to transfer your personal loan debt onto them.
It is very common to find balance transfer credit cards with interest rates of 0% for periods of 6 to 12 months which is a truly remarkable offer to help you pay off your debt.
Disadvantages of a Credit Card Balance Transfers
As a credit card loan is an unsecured loan, there is usually a limit to how much debt you can transfer onto a balance transfer credit card. So, if you have a significant personal loan debt you might not be able to transfer it all onto a single balance transfer credit card, but you could try transferring it on to multiple balance transfer credit cards which is a bit inconvenient.
Also, if you have a significant personal loan debt, your credit card balance transfer application could be rejected, so some people do not have the option of transferring their personal loan debt to a balance transfer credit card. In this case, a debt consolidation loan might be your only option.
Note: if you fail to make the minimum repayment on your balance transfer credit card your introductory balance transfer rate might increase.
What is Debt consolidation loan?
Debt consolidation loans allow you to consolidate all your personal loans into a single loan with a low interest rate to help you better manage and pay off your loan. A debt consolidation loan can be a secured loan or an unsecured loan as oppose to a credit card loan which is always unsecured. A secured loan simply means that the loan is secured against your asset such as your car, bike, computer, boat etc. This means that if you fail to pay back the loan, the loan provider can take possession of the items the loan is secured against.
Advantages of Debt consolidation loan
Debt consolidation can make your loan more manageable as you only have to deal with one loan provider and the consolidated rate is often cheaper than the individual rates. You can also usually transfer a much higher level of debt into one consolidated loan and you have the option to negotiate your rate.
The main advantage of a debt consolidation loan is that it allows you to consolidate a larger amount of debt and you have the option to secure the debt against your assets to get a better rate.
Disadvantages of Debt consolidation loan
The interest rate of debt consolidated personal loans are usually a lot higher than that of balance transfer credit cards, but balance transfer credit cards usually have a low cap on how much you can transfer on to your card and some balance transfer credit card would not allow you to transfer your personal loan debt on to your credit card.
In general, the interest rates of debt consolidated personal loans are much higher than that of credit card balance transfer offers, even when the loan is secured against an asset, but debt consolidated personal loans give you access to higher borrowing capacity.
Considering getting a credit card?
The best credit card for you would depend on your personal circumstance and how you intend to use your credit card. We have put together a list of some of the best credit cards in New Zealand to help you find the best credit card in NZ to suit your individual needs. Alternatively, you can narrow down your search by credit card type such as interest free credit card, low rate credit card, balance transfer, credit card reward or air nz credit card