A: Dear reader, it’s very common for people to seek personal loans or balance transfers to pay off their credit cards when they feel overwhelmed with their debt or when it becomes difficult to make the monthly payments. Whenever you feel like that, it’s a good idea to look for debt repayment strategies immediately.
If you are finding yourself in a similar situation, I recommend that before you move your debt around, you should explore other debt repayment options that will allow you to deal with it directly. A personal loan or a balance transfer requires you to open a new line of credit with lower interest rates to make it worth your while. Then, you have to be ready to repay the new debt. These strategies could save you some money, but that’s not always a guarantee. For instance, if you don’t have good credit, it would be difficult to get the best and most affordable rates from creditors. Also, you may not get a credit line that is large enough for you to pay off or transfer the debt you currently owe, so you will have to either get multiple balance transfers or deal with the remaining balance in some other way. Each balance transfer can result in a separate fee, meaning multiple balance transfer fees than can be up to 5% of your balance. In addition, personal loans and credit cards with a 0% promotional interest rate have a short repayment period. This could mean that while you are saving on interest rates, your monthly payment may increase to ensure you’ll pay the full amount before the loan matures or the promotional period expires. If you do not have enough money to afford your current payments, it may prove difficult to meet the new minimum payment requirement every month.
One possibility to deal directly with your debt is to ask your credit card company to lower your interest rate. If you’ve had a good payment history and have never gone over your credit limit, most likely they will work with you. Do some research to know what interest rate you can ask for and be persuasive. If they lower your interest rate enough to make a difference, you should focus on a repayment strategy. To get the most out of this strategy, stop using your credit card to take on any new debt. Then, focus on paying as much as you can over the minimum every month. Although this can be challenging, you can rework your budget on your own or with the help of a certified credit counselor. After evaluating your current financial situation, a counselor can also help you find the best repayment strategy for you and even recommend a debt management program if you have more than one card.
Another possibility to consider is enrolling on a credit card hardship program. Some creditors who offer these programs can suspend interest rates for a period of time and even reshape your payments. However, you will have to meet the creditor’s qualification criteria and may have to provide evidence of financial hardship. Your credit card can be closed and your hardship program enrollment may be reported to the credit bureaus, which could negatively impact your score. But, if your debt is about to spiral out of control and you are likely to start missing payments, your credit score could take a harder hit in that scenario. Though your credit rating might take a minor dip when starting a hardship program, it will improve over time with your continued on-time payments.
If you have reviewed different credit card repayment options, you have good credit to get a decent interest rate and large enough credit line, and you trust yourself enough not to incur any additional debt with your paid off credit card or new line of credit, it might be a good time for you to consider a personal loan or a balance transfer. It has benefits and risks. You will save on interest, but you still have to strategize to pay the debt in less time. The most important thing is to act immediately and regain control of your finances. The sooner you tackle your debt, the more options and resources you’ll have available to manage it.