Consolidation of debt means transferring all your existing debts into one single credit card. People often take personal loan to do the same, but with the right credit card you can consolidate debts at much cheaper rate.
Moreover, credit card gives you the flexibility to choose the amount you have to pay back every month.
Why should you consolidate?
Some people have more than one debt, like more than one card, this can make it difficult to organize these cards and also leave you prone to committing mistakes.
When you consolidate your debts to one card then all you have to make is a single payment and you can see the remaining amount of debt easily. Keep in mind that you should always repay more than minimum payment for quicker repayment.
Balance Transfer will get you out
Balance transfer cards are credit cards which allow you to shift your existing debts from old cards to them.
Why would someone do that? Balance transfer cards often offer very alluring offers such as low interest rates or 0% interest offer for some period of time.
Majority of card providers offer 0% interest deal to attract customers and you have to look for the tenure of the 0% interest deal. The normal period is between 12 to 40 months. After this period interest will start incurring.
Cost of Balance Transfer
The process of transferring debt to a balance transfer credit card is called ‘Balance Transfer’. But these cards don’t do it for free, they ask you for some money to do it known as Balance transfer fee. It is some percentage (decided by the provider) of the money you are transferring.
For example, you are transferring 50,000 rupees from your old card and the balance transfer fee is 4% then you will have to pay 2,000 rupees as balance transfer fee.
The balance transfer fee is nothing in front of the amount of interest you will have to pay at your old lender. Rather balance transfer credit cards are cost effective provided you repay the debt before the 0% interest deal expires.
When 0% interest deal expires the interest gets back to the average 19% benchmark or even higher. Balance transfer credit card will become an expensive deal here.
There are also cards that don’t ask for a balance transfer fee but they have shorter 0% interest deal. Also, if you think you will not be able to repay the complete debt in the 0% interest deal, then you should go for a credit card which has lower rate of interest after the deal ends.
There are tools that can help you calculate the time it will tell you to repay the debt and how much interest you can save by a balance transfer cards.
The Credit Rating
If you look risky to the lender then you will not be able to get the best deal.
Look out for these
Most credit cards have relatively higher APR for making purchases that’s why it is wise to also keep an alternative card with less interest on spending.
Equally, remember that you will have to pay the normal interest when the 0% interest deal expires. So, make sure that you will be able to repay the complete debt before the deal ends.