Can A Lifetime Balance Transfer Card Replace A Personal Loan?
Balance transfers are one of the most popular features on a credit card, offering as they do the chance to save money on debt by moving it to an account where less interest is paid.
0% Balance Transfers
The most popular and well known type of transfer is the 0% deal, where interest charges are suspended completely for a certain number of months. Although a fee will usually be charged, these deals give cardholders a little breathing space or an interest holiday in which to either begin paying down the debt, or put the money saved to clearing some other more expensive debt.
There is of course another kind of balance transfer deal available though – the long term balance transfer. With this offer, although interest will still be charged on the balance, it is at a much lower rate, in some cases less than 5%. This low rate will either be permanent, or last for a term of two or more years.
What’s the advantage of this over a 0% deal? Firstly, the aforementioned balance transfer fee has made 0% deals less attractive. Secondly, many people are nowadays actively looking to pay down their debt, and the long term nature of the low interest offer gives stability and allows for planning.
In fact, the rates offered by these cards are often lower than those available with a personal loan, so should you consider taking out a lifetime balance transfer to consolidate debts rather than use a loan?
At first glance, the lower interest rate would appear to make this a better option – surely this would be less expensive? There’s a catch though: with a credit card, you only have to make the minimum repayment every month, and this is often barely enough to clear the interest charge. In many cases, if you stick to the minimum, you’ll effectively be treading water and not reducing your debt by very much at all, and this is very expensive in the long run. Compare this to a personal loan, where your monthly repayments will be paying off both the balance and interest over a set term.
Of course, you can always pay more than the minimum, and this will get rid of that drawback. Indeed, the ability to vary your payments is a great advantage to using credit cards to consolidate debt, as you can pay off a lot in one month when you can afford it, and pay only the minimum if you have to the next because of a lack of cash.
If you can find and be approved for a lifetime balance transfer card with a large enough credit limit to pay off your other debts, then this can certainly make sense financially so long as you are confident that you’ll be paying more than the minimum each month. If you’re not sure you will have the discipline to do this, then a low rate loan will probably be the more sensible and less expensive bet.