Payment of credit card debts through a debt

A question often asked by borrowers is,” Should I avail personal loan or balance transfer to disentangle from credit card debt?” Short-term debt like credit card can be a convenient source of quick funding but can eventually make a deep hole in your pocket. Remember, the interest rates on credit cards are much higher than that on other loans. But weigh all your options and their consequences before you avail a personal loan or low-interest balance transfer as you run the risk of being debt trapped.

Balance transfer versus personal loans

How can one break out of this viscous circle? Either you should ask your bank or credit card issuer to lower the rate or find out whether you can afford to pay off the debt without opening any new credit accounts. Do a little homework to figure out the right option to protect your credit score and save money.

Although both are possible consolidation options for your credit card debt.

Balance transfers are performed by switching one credit balance over to another credit card, usually for a low promotional rate over a limited time period. On the contrary, personal loans are provided by banks and credit unions and can come in secured or unsecured forms. These loans typically have lower interest rates than credit cards, especially if you secure the loan by pledging an asset, such as your car as collateral.

Selecting which option depends on various aspects. For example, how your debt is currently distributed might limit your options. Even though many credit card issuers allow you to transfer over balances from multiple cards into your new card, not all do. On the other hand, a personal loan is probably the cheaper option.

You might be not found it suitable to pledge collateral against a possible secured personal loan. If you default on your credit card debt, it’s unlikely that the card issuer will sue you and comes after your assets. That changes when you open a secured personal loan; the company does take the asset to recoup its loan if you default.

Whether a personal loan or a balance transfer, both categories are likely to negatively impact your credit score, even if you never miss any payments.
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