If there are certain financial terms that you do not understand, then you can rest assured that you are not alone. Many people do not know the difference between a credit card balance and credit card debt consolidation.
It is important to understand the difference between credit card debt consolidation and credit card balance transfer. Here is an explanation of the differences between the two:
Credit Card Balance Transfer
This simply means transferring the balance from one credit card to another credit card. Many people choose to do this because the interest rate on the credit card is too high. This can save you a lot of money.
Credit Card Debt Consolidation
This means using a single credit card or loan to pay off several credit cards. Many people choose to consolidate debt if they have several credit cards with high interest rates. This will not only save you money, but it will also help you simplify the process of paying off debts.
Both of these methods can help you save a lot of money. However, there is one key thing that you have to keep in mind. Credit card debt consolidation involves combing multiple debts into one. When you do a balance transfer, you will just be moving the balance to another credit card.
How are Credit Card Debt Consolidation and Balance Transfer the Same?
You know that there is a difference between a balance transfer and a credit card debt consolidation. However, you probably know that the two are related. In fact, many people use a credit card balance transfer to consolidate their debt.
If you shift multiple balances onto one card, then you may qualify for a 0 percent promotional balance transfer. This typically lasts six to 12 months. You will not have to pay any interest on the balance during this time. Instead of making multiple payments, you will only have to worry about making one.
You can also consolidate your debt with home equity loans or personal loans. It is a good idea to take the pros and cons into consideration before making a decision.
When to Consider Consolidating Debt and how to Avoid Pitfalls
Credit card debt consolidation and debt consolidation make sense if you have a lot of credit card debt and want to reduce your credit card debt. You will save money and be able to pay off your debts faster. Here are some pitfalls that you will need to avoid:
Transferring a balance is not free. You will probably have to pay a fee of three percent or more. Keep in mind that if you choose a personal loan to consolidate your debt, then you will also have to pay a fee. Make sure that you are aware of any fees that you will have to pay.
If you get a 0 percent balance transfer promotion, then the promotion may be cancelled if you make one late payment. You may want to consider another option if you have a history of making payments late.
In order to get a good interest rate on a loan or qualify for the 0 percent promotional offer, you will need to have good credit. If you do not have good credit, then you will have to shop around to get the best interest rates.
Regardless of whether you take out a loan or transfer your balance, you will have at least one card that is paid off. Do not take on any additional debt because you could end up in the same position again.
The Bottom Line
Credit card debt consolidation and credit card balance transfer is not the same thing. However, transferring multiple credit card balances onto one credit card is a great way to consolidate debt. It is important to avoid common pitfalls in order to get the most out of transferring your credit card balance or consolidating your debt.