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Debt Consolidation Or Balance Transfer - Which One Is The Best?

Published on Feb 1, 2023Updated on May 21, 2024

Debt Consolidation Or Balance Transfer - Which One Is The Best?

When faced with high debt balances and interest rates, there are options available to you. One way to potentially save money or pay off your debt faster is by consolidating your debt or transferring your balance. In order to determine which option is best for you, consider factors such as the amount of debt you have, the offers made by creditors/lenders, and the length of time it will take to pay off the debt. Both consolidation and balance transfer can be effective, but one may be a better fit for your specific situation. 

This article will provide further insight to help you make an informed decision between debt consolidation and balance transfer.

What is Debt Consolidation?

Debt consolidation is a process of obtaining a new loan to pay off existing debts, such as credit card balances and other obligations. This involves combining multiple smaller loans into one larger loan, such as a personal loan that has more favorable terms, such as a lower interest rate or a smaller monthly payment. By debt consolidation loan you can consolidate your debt, you can potentially save money on interest as a personal loan typically has a lower interest rate compared to credit cards. The duration of these loans can range from two to five years, depending on the amount borrowed.

Advantages of Debt Consolidation

  1. Simplifies your Finances: You have fewer payments and interest rates to be concerned about when you combine several outstanding debts into a single loan.
  2. Improves your Credit: Consolidating your debt will also help to streamline your credit because you'll be less likely to miss or make a payment delay, and you'll know when all of your debt will be paid off.
  3. Lower Interest Rates: You're likely to pay a lower interest rate with a debt consolidation loan than what you're already paying on your credit card. Please note, rates vary depending on your credit score, loan size, term length, lender’s policy at the time of application, etc. 
Must Read: How to Apply for Personal Loan Balance Transfer?

What is Balance Transfer?

A personal loan balance transfer is the transfer of outstanding debt from one credit card to another, usually a new one. Consumers who want to transfer the amount they owe to a credit card with a considerably lower interest rate and better advantages, such as a rewards program to earn cash back, points for everyday spending. By transferring the debt to a card with a lower introductory interest rate, individuals can potentially pay off the debt more quickly, as less money goes towards interest charges.

Advantages of Balance Transfer:

  1. 0% Interest Rate: The 0% introductory APR offer is the main perk of a credit card with 0% balance transfers. You may be able to carry your debt for a period of time without accruing interest.
  2. Lower Credit Utilisation: This is due to the fact that a balance transfer will eventually assist you in lowering your credit utilisation rate by moving debt to a new card and increasing your overall credit limit.
  3. Moving of Debt to New Credit Card: You may even be able to transfer your debt to a credit card with a lower interest rate and better terms, depending on the card you are approved for. 

However, please be aware that balance transfers may come with additional fees, including a percentage of the transferred amount. Additionally, the transferred debt may be subject to the card's standard APR if it is not fully paid off before the introductory 0% APR period expires. Additionally, credit limits for balance transfers may vary from issuer to issuer, so you may need to transfer only a portion of your debt or apply for multiple balance transfer cards.

Debt Consolidation Vs Balance Transfer: Which one is Best For You?

Keeping the aforementioned details in mind, it may be clear how your own financial situation can determine the best option for you. A credit card with an introductory 0% APR offer, for example, might be the best option if you have a few thousand rupees in debt. This is especially true if the card has a low balance transfer fee and a long enough promotional period so that you can pay off the debt before the rate increases.

However, a debt consolidation loan can be a better choice if you require a long time to pay off a large balance. It is possible to be approved for a larger loan amount with a low rate for the duration of the payback period.

Conclusion

For you to pay off your debt without fuss, SMFG India Credit offers personal loans with a maximum amount of INR 25 lakhs* at reasonable interest rates starting from 11.99%* and flexible repayment terms. Apply for a personal loan right away!

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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