Balance Transfer or Personal Loan to Pay Off the Credit Card Debt?

There are a lot of people who wonder if they should get a personal loan to pay off their debts on their credit cards. Their main reason to think so is because the rate of interest in a credit card is twenty percent per annum but it is just ten percent in a bank loan. There are a few things one should know before taking such a decision.

Even after paying off the debt, the credit card does not get canceled; the borrower has to request to get it done.

The credit card is very helpful for someone who needs quick money and does not have the cash to make the payment. At that time, if the person has already canceled the card, he will have to rush to the credit card company to get another card so that the urgent requirement can be met.

Even if the credit card has been canceled, the person should have a debit card because there are a lot of payments for which a debit/credit card is required and it does not even charge interest.

The credit cards have some advantages too, the owner is never penalized, but it is so in case of personal loans, in the form of fixed and variable personal loans for bad credit. Even if the personal loan has been opted for, the borrower must go for a variable interest loan as there is a freedom of paying the loan early and the interest is also reduced.

If the borrower has high expenses and the debt is also high, it will take him/her approximately six months to pay it off, it's better to get the card canceled and reduce the expenses as the personal loan will be even more expensive with fees and monthly installments.

The credit card companies do not refund the annual fees given in the starting of the year if the card is canceled in the mid year. The person has to ask for it and at times the companies do not pay heed to it. So, that is something for which the customers should be alert.

There are a few differences between balance transfer and personal loans in case of paying off the credit card bills.

A personal loan is not like cash and once the debts are paid, there are no further charges. But in case of balance transfer, the borrower may get into a deeper debt trap. If the balance is transferred from the old credit card to a new one, having a higher credit limit and no interest, the card owner tends to spend lavishly and end up getting into a deeper debt.

Credit card companies charge very less as compared to the bank loans with no credit check and the borrower is supposed to pay two percent of the outstanding balance in case of credit cards.

Once the zero interest term of 12 months is over, the banks start charging high rate of interest. In this case, it’s better to transfer the balance to another credit card which is also on zero interest rates. But this option should be considered only if the borrower is ready and can afford to pay it back. Otherwise the option of personal loan should be taken into consideration.

All these things must be kept in mind before taking a decision. And a balance transfer should be taken, only if the borrower is okay with it and can afford it, otherwise it will lead him/her into deeper debts.