Many people are looking to save money on interest payments when it comes to debt management. It is a tricky situation to be in, with many companies advertising balance transfer cards as being one of the best ways to control debt interest. But is that always the case? What really is the best way to cut down on the interest you are paying?
In the latest reports, South Africa’s household debt reached 164.1 USD billion in Jun 2018. It is not surprising that people want to reduce debt payments and it is a big problem for many. It is also important in this day and age to compare financial products; in fact, it is a very financially savvy thing to do. By choosing the right product, you could improve your long-term financial situation.
Balance transfer credit cards and personal loans are two popular ways of cutting interest charges in order to repay debt faster. Both have their pros and cons:
One way of reducing the interest paid on your debt is a balance transfer card. Many cards offer an introductory 0% interest period. The time this lasts for differs; some could be as long as 32 months, but it is rare to find one for this long. This can really make a huge difference in the interest you pay in the long term. However, be wary: a balance transfer card may include a fee to open the card. You also might automatically run into the new, higher interest rate without a warning and start paying large fees again.
A personal loan
A short-term personal loan is another way of possibly reducing interest payments. This is because you can use the money to repay your outstanding balance more quickly. When it comes to personal loans, the interest rate is usually far lower than that charged by credit cards. You can also choose a repayment period to suit you, which means you are offered more flexibility.
Of course, it is important to check products thoroughly before committing. In most cases, there is no fee for taking out a personal loan, and be wary of providers who do charge a fee. It is also vital that you choose a reliable provider when picking a loan product. Wonga, a personal loan provider in South Africa, talks about the importance of using a regulated loan provider on their short term loan page, “A lot of short term loan providers claim not to do a credit check on a loan application, which is in contravention of the National Credit Regulations. With Wonga, in order to get a short term cash loan, you’ll have to pass our credit check, which usually only takes a few seconds. When you do, you’ll be able to take advantage of our short term loans.”
When you are deciding between the two options, carefully consider the maths and long-term implications of the product you choose. If you are confident you can clear your debt within the 0% balance transfer period of a balance transfer card, this could be the right option for you. However, a personal loan may be better if it gives you lower interest rates and perhaps more flexibility.