As most folks know, credit cards tend to have interest rates that range from 12 to 25 percent – rather high, right? It can be costly to have any kind of balance on your card. However, before you do anything about that card such as taking out a personal loan or transferring the balance to a zero-interest card, there are few options that could be at your disposal.
Sometimes the answer is staring right at you, and it doesn’t always involve a personal loan or new credit card with no interest for a certain period of time, which can hurt your credit score and cost you more money.
This occurs after you allocate a card balance to another credit card to take advantage of the new card’s promotional rate. Many credit cards offer a zero percent annual percentage yield for the first six to 12 months after you open the account.
Don’t confuse personal loans with peer-to-peer loans, though they are both something to consider for your debt. Financial institutions like banks and credit cards will provide personal loans, and you can either get an unsecured or secured one. Personal loans don’t have high-interest rates, unlike credit cards. And, if you get a secured loan, the rates are even lower.
How do you decide which option is right for you? Here are a few things to keep in mind:
How is the debt you have now distributed? – There are many credit card companies that will let you transfer multiple cards’ balances onto the new card, but there are some that don’t offer this.
Can you pay off these balances before the promotional period ends? – If you still have a balance on the new card after you transfer the balances from the other cards, you’re going to start paying interest on it again – perhaps even a higher interest rate than the other cards. If you find yourself unable to pay off that card before the promotion ends, it may be a good idea to get a personal loan.
Are you comfortable with promising collateral for a secured personal loan? If you fail to pay a credit card bill, the chances of the company coming after your assets are low. If you open a secured personal loan and default, the company can legally seize the asset to recover some or all of its loss.
It really doesn’t matter which option you go with; both are going to hurt your credit score, even with timely payments. Credit scores don’t respond well to accounts that are closed, and they don’t like it when you get new accounts. If you’re using your credit card, it also causes the score to go down.
As you see, you really have to weigh your pros and cons before you tackle the credit card debt you have. Would it be better to pay it off as you have been? Or, is getting a personal loan or another credit card with a balance transfer offer the right thing to do? Think about it before you take action to ensure you don’t further damage your credit rating.