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Financial challenges are common among many income brackets, and one of the most significant sources of money-related stress relates to credit card balances. High interest rates and a revolving term generally creates high monthly payments and may make the debt difficult to pay off. If you carry high balances on one or several credit cards, you may be exploring ways to improve your debt management and hopefully to pay your outstanding balances down. Two of the most popular options that consumers look at are using a debt consolidation loan or a credit card transfer. There are very significant differences between these two, and by carefully analyzing them, you can take greater control over your finances.

What is a Credit Card Balance Transfer?

In order to determine whether a balance transfer or a debt consolidation loan is a better option for you, you must first understand what these are. A credit card balance transfer essentially means that you are transferring your account balance from one or more credit cards to another credit card with an available credit limit. You will need to contact the credit card company to confirm how much debt you can transfer to your credit card account. Some credit card companies offer great transfer offers, such as the ability to have no interest charges for a few months. However, pay attention to what the interest rate will revert to after the introductory period has experienced and what the balance transfer fee is. Some people find that they do not have an available credit limit large enough to produce results from this option.

What Is a Consolidation Loan?

A consolidation loan is generally a new account that you will open. It can be a home equity loan, an unsecured personal loan or even an auto loan if you currently have substantial equity in your vehicle. These loans usually have a fixed term and an attractive fixed interest rate, but the interest rate and term lengths can vary substantially. There are also usually loan fees that you may incur when you apply for the loan. You will use the loan proceeds to pay off your outstanding debts. This essentially transfers your current credit card balances to your new loan. Generally, it is advisable to close most or all of your credit card accounts to prevent new charges from being made. Ideally, you will qualify for a large enough loan to consolidate all credit card debt, but this is not always the case.

When Should You Opt for a Balance Transfer?

Many people who opt for a balance transfer already have a credit card with an available balance on it. Therefore, they often do not need to apply for a new loan. This can be advantageous if you do not have time to apply for a new loan or if you believe that your credit rating or financial situation will make it impossible for you to qualify for a new loan. A credit card balance transfer may be a great idea if you believe that you can pay most or all of the debt balance off before the introductory period expires. Keep in mind that some people will use a balance transfer initially and will refinance the remaining debt into a consolidation loan after the introductory period expires and the rate increases.

When is a Consolidation Loan a Better Option?

A consolidation loan has a fixed term, and it therefore creates a firm debt elimination plan for you. When the end of the term is reached, any debt on the loan will be entirely paid off. A consolidation loan is a great option if you do not have an available balance on your existing credit cards and if you think you can qualify for a new loan. In addition, because this type of loan has a fixed term, it may create more affordable payments.

If you are still not sure which option to proceed with and have the opportunity to consider both options, it may be wise to get quotes for monthly payments from your credit card company and your consolidation lender. Compare interest rates as well, and use online calculators if necessary to determine when the debt will be entirely eliminated for both options. This can help you to make the best decision possible.