Do you have a lot of debt and would like to manage it in such a way it will allow you to be free from it in a few years or less? If that is a yes, you may be wondering what kind of financial program or service would help you because they all sound similar from one another and do the same thing.
Out of all these financial products, personal loans, balance transfer and debt consolidation would be at the top three. All three products are offered by banks, credit institutions and moneylenders across the country and each one of them has their pros and cons for those who plan to avail them.
However, what exactly are these pros and cons and how can you pick which one is right for you? Here are the questions you can ask to help you to pick the right debt management product for your needs:
How fast can I pay my loans?
The tenure duration for personal loans and debt consolidation plans tend to go on for a couple of years considering the amount covered. Usually, this may be for a year to 10 years, perfect for those who want to spread out their payments.
Balance transfers, on the other hand, may take up to 3 to 12 months considering that the interest rate is just 0% p.a. during these periods. However, if you failed to pay within this period, you will need to pay off your loan with an interest rate of 24% p.a.
What kind of financial program do I need?
If you want to get funds without being restricted to where it is used, a personal loan is a way to go. If you apply with a moneylender, you can get the amount you borrowed as fast as 30 minutes and you can pay off the debts you have which have high-interest rates, especially if you have gotten a personal loan with a low-interest rate.
Similarly, a balance transfer program would help you pay off your debts. However, this is good if you plan to pay it for short-term needs thanks to the fact it has a 0% promotional interest rate. If you can pay it within the promotional period, you will find a lot of benefits from this program.
If your debts all have high interests, taking the debt consolidation program is ideal. With this program, you can consolidate all your debts that is worth 12 times your actual monthly salary and put them into one single loan with a low-interest rate. Sadly, you cannot use this program for other expenses.
How are repayments done?
In terms of paying for each one of these programs, they do have different repayment schemes.
If you will take a personal loan or a debt consolidation program, you will need to pay a fixed amount every month throughout your loan tenure. The amount is computed based on your loan term, the interest rate of the loan program and the total amount you borrowed.
However, for balance transfers, it does not have a fixed monthly amount when you pay it off. Instead, you can determine how much you want to pay every month so long as you can pay the minimum repayments.
Usually, this is around 1% to 3% of your loan’s principal. Unfortunately, you may need to pay more than the minimum repayment amount throughout the 0% p.a. period because any amount you did not pay off during this period will be paid with a higher interest rate and it could be around 24% p.a. and up. If you will undertake this program, you will need to be patient in paying off your debts with a higher repayment scheme.
If you think you can’t handle this pressure, you can pick personal loans or a debt consolidation program.
What is the interest rate?
Each debt management product comes with different interest rates.
For balance transfer programs, moneylenders and banks tend to offer it with a promotional rate which can be for the first 3, 6 or 12 months. Around this promotional period, you won’t have to worry about paying an interest rate since it will be at 0%. However, they will charge a one-time processing fee that can be around 1.38% p.a. to 5.50% p.a. When the promotional period ends, your interest rate can be around 24% p.a.
For personal loans and debt consolidation programs, they do not have a 0% interest rate. However, they do have a fixed interest rate throughout your loan. Personal loans come with a fixed interest rate that starts at 3.7% p.a. to 13.14% p.a. Debt consolidation programs come with interest rates starting from 3.98% p.a.
Which one is good for me?
Finally, it is important you know the requirements of each debt management program before you apply for them.
For both personal loans and balance transfers, you need to be at least 21 to 65 years old to apply. You should also have a minimum annual income of $30,000 and a maximum annual income of $120,000.
Your credit history should also be good and if applying for balance transfers, you have a total debt must be at least 12 times more than your monthly income. The same total debt amount should also be reported if you will apply for debt consolidation.
If you are hoping to reduce your debt immensely and reduce the number of times you have to pay monthly, getting a balance transfer or debt consolidation program would work wonders. However, before you sign up for one, it is ideal that you check its loan tenure, interest rate and repayment schedule before you sign for one because it may not be as affordable as you think.
If you plan to just borrow a few amounts of money to take care of expenses, a personal loan is the most viable.
Of course, make sure that you consider your status before you sign up for either one of these programs because if you do not, you may find yourself in an even deeper debt than before.