Why do some people choose to consolidate?
One reason you may choose to consolidate your debt onto one credit card is that you have many debts in different places. This can make it difficult to keep track of what you owe and who to.
However, if you consolidate your debt onto one card then you no longer need to keep track of multiple debts as you only have to pay one monthly payment.
This can be beneficial because:
However, the negative consequences of this option are:
Choosing the best balance transfer
A balance transfer is a process of moving what you owe from one card to another, usually because of better terms.
It is possible to look for cards that offer low-interest rates or even cards that offer a 0% interest on balance transfers. Many card providers offer 0% interest deals as a way of drawing in new customers.
Therefore, make sure you look at how long the deal lasts for as after the advertised period interest will be charged, which can be costly.
How costly is a balance transfer?
When you move your debt to abalance transfer card you will be charged a fee by the provider. Often, this is a percentage of the amount you are looking to transfer.
A balance transfer card will only be cost effective if you make use of the 0% interest period. Due to the lack of interest, you can stretch your money further meaning you can pay off your debt sooner.
However, if you haven’t cleared the debt by the time the 0% interest period is over, the balance transfer cards become expensive as you now have to pay interest.
As with all things, there are pros and cons of a balance transfer:
Is credit rating important?
Your credit rating is key if you want to get the best transfer deals as they are reserved for those with clean credit history and a high credit rating.
Lenders are only obliged to offer 51% of applicants their promotional offer rate. This means your credit rating must be perfect as they can afford to be choosy, leaving you with a worse offer or even worse, you could be declined.
Should you use a debt consolidation loan?
If you don’t feel that consolidating your debt with a credit card is the right option for you, you can always consider using adebt consolidation loan.
This is when you borrow enough money to pay off all your current debts and owe money to just one lender.