People are looking to transfer credit card debt into another form of loan that is more manageable. Such debt is often relocated to personal loan or balance transfer credit card. It is done to lower interest rates, which means credit card holder will save more money in the long run. Is it always true, though? It is certainly not. Without great calculation and planning, it just means transforming your debt into another mode.
Basic Knowledge to Transfer Credit Card Debt
If you are taking out a personal loan to transfer credit card debt, it means you are using money obtained from that loan to pay off current debts. Instead of making multiple monthly payments to credit card issuers, there is only one payment that needs to be made. It usually requires borrower to have great credit rating. In case where borrower does not have good rating, asset is demanded as collateral to secure the deal.
Balance transfer credit card is also a way to relegate debt. When you plan to transfer credit card debt into such type of card, you must be knowledgeable about its features. There are usually two kinds of annual percentage rate or APR. The first one is promotional rate during initial phase of usage which can be as low as 0%. It only applies for certain period, usually twelve to eighteen months. The second APR is regular one which will be applied after promotion ends and onward.
Before deciding to transfer credit card debt, you must know some of the negative consequences. It may lower borrower’s credit rating. The reason is because transferring debt to one place means compiling smaller debts into one big debt. High balance means high utilization rate and decrease in credit score. However, if balance is paid, the score will bounce back up. Irresponsible card holder has potential disaster of having much bigger debt.
Below are three tips on how to transfer credit card debt so that the move will work on your favor instead of creating another catastrophe.
1. Obtain Sufficient Information
Being well-informed about the advantages and disadvantages of transferring debt from credit card is going to help you immensely. You must also understand all visible as well as hidden costs on making the transfer. Researching the best institution to service you is also important.
2. Calculate in Detail
Make calculation of before and after transfer credit card debt (whether it is to personal loan or balance transfer card) based on information that you have obtained. Compared the two to see which one will benefit you the most in longer time frame.
3. Generate Repayment Plan
Once you have decided to move your old debts, you must arrange plan that help you make the most of this approach. If you get 0% promotional rate, it is best to pay off before the promotion ends. Making additional payment can also help reducing total interest charge.
As you see, there are many aspects to consider when you want to transfer credit card debt. It seems like a beneficial move, but without careful decision it can harm you in the future.