Credit Card Transfer or Consolidation Loan?

Is Interest-Free Credit or a Single Monthly Repayment Preferable?

Jun 20, 2009

Is a credit card transfer or consolidation loan better? Find out whether interest-free credit on several personal debts is better than a single monthly repayment.

U.S. consumers regularly wonder whether an interest-free credit card transfer or consolidation loan will help them more. A great deal will depend upon personal circumstances, such as credit rating, how many different debts exist and the type of debt consolidation loans that are available.

Reduce Personal Debt with an Interest-Free Credit Card Transfer

Whilst the principle benefit of a debt consolidation loan is a single monthly repayment, it is not a form of interest-free credit. A credit card transfer will allow a consumer to avoid further interest payments for an average of 12 months. For example, a consumer with an existing $10,000 balance accruing interest at 18% APR will stand to save $1,800 per annum. A further balance transfer could be performed at the end of the promotional period, provided the applicant maintains a good credit history.

A Debt Consolidation Loan Simplifies Family Finances

Arranging interest-free credit card transfers may reduce interest payments, but it doesn't make family finances easier to manage. According to MyFico.com, the average U.S. consumer has an average of 13 credit obligations. These include charge cards, store cards, gas cards, bank cards, auto loans, home mortgages and student loans. A consolidation loan means that a consumer makes a single monthly repayment and also knows when any outstanding personal debt will be cleared.

Those who have missed or made late payments on existing credit agreements will find that this has been registered with credit reference agencies. Banks are unlikely to approve an application so a credit card transfer may not be possible. Consumers who want to manage family finances more effectively will only be able to do so via a secured consolidation loan.

Secured Consolidation Loan or Credit Card Transfer?

Money spent on a charge card is legally classified as unsecured personal debt. A consolidation loan is regularly taken out by homeowners with bad credit because they want to simplify family finances. However, turning unsecured into secured debt is rarely a good idea as it gives creditors collateral. Should an unsecured consolidation loan not be available, a credit card transfer is preferable.

Turning unsecured personal debt on charge cards into a secured debt consolidation loan should generally be avoided. If this is the only option available, it normally means that bad credit is an issue. Struggling consumers may wish to consider a Debt Management Plan, debt settlement or filing bankruptcy instead.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

The copyright of the article Credit Card Transfer or Consolidation Loan? in Personal Loans is owned by Asa Ghaffar. Permission to republish Credit Card Transfer or Consolidation Loan? in print or online must be granted by the author in writing.