When you’re looking at ways to get rid of your debt
, one of the first things you read about is a balance transfer
. Under this method, a person takes their existing credit card debt and moves it to a card with a lower interest rate. This relatively simple process can look a lot less complicated than a debt consolidation loan
, but it can also result in a person paying a lot more money. The main problem with balance transfers is that they are not free; a person will typically pay a fee of 3 to 5 percent on the balance that they transfer to a new card. For the average American credit card debt of $15,000 that can mean a fee of $750 that is added to the balance on the card.After the transfer is completed, interest begins accruing on the balance immediately. In cases where the new card is offering a zero percent interest rate, the “introductory rate” is typically only offered for a few months. If the debt isn’t paid off by then, the balance will start accumulating interest at a much higher rate. Unless you have a plan to pay off the debt very quickly, you’ll probably wind up paying more for the balance transfer than you would have if you had never moved the debt in the first place.If you really want to save money, you want to consider debt consolidation
. These loans do not have any fees, and the interest rate remains the same throughout the entire loan term. Furthermore, when you apply for a consolidation loan you’ll work with a debt counselor who will review your budget and finances and pick out the loan that is right for you. That means that you’ll know that you can afford the payments.
Additionally, you’ll be able to get a lower monthly payment when you get a debt consolidation loan. That payment will remain the same during the entire loan term; you can pay more when you want or spend that money on something else when you need to. The interest rate is lower than your credit cards, but the payment is much easier to predict and plan around.