Balance Transfer vs. Debt Consolidation: What’s the Best Way to Fix Your Finances?

For many people, their finances are the largest and most difficult source of stress in their lives. Millions of people across the UK struggle with their finances and are in mountains of debt. The good news is there are several different options for people who are struggling with their debt and getting their finances in order.

Balance transfers and debt consolidation are two different options for many people that have worked out in the past. There are pros and cons to both that must be understood before going down the path to execute the plans for either one. At the end of the day, no matter which strategy a person chooses, it is important to identify the problem they have within them that got them in their debt issue in the first place.

Balance Transfer

One of the most popular methods in dealing with crushing levels of debt is the balance transfer. Balance transfers are fairly simple in theory, in which a person simply transfers their existing balances on to another debt balance.

An example of this would be a person who has incurred a huge credit card debt with high interest rate charged. Here comes a different credit card offering a 0% interest in balance transfer for the next 12-18 months. So you transfer your existing debt from one card to another hoping to take advantage of the 0% interest rate while you pay off your credit card balance.

There are several different advantages to doing this, but for the most part, a person gets a better interest rate (in this case, none) and a chance to settle his debt. Sometimes a company may take less than what is owed on the debt in order to at least recover some of the bad debt.

Debt Consolidation

Debt consolidation especially with bad credit is a more popular and better option for many people who are struggling with debt. When working with a debt consolidation company, they will look at your finances and how much money is owed among the different debts. Then, they will consolidate all of that debt under one umbrella so it is easy for a person to get their finances organized.

There are several advantages to having all of a person’s debt under one name, most notably the fact that it makes financial planning easier. There are even some debt consolidation firms that will help people with their financial planning based on how much money they make, how much money they owe, and their time horizon before their projected retirement.

Future Planning

Even with a perfect strategy to get out of debt, it is important that people change their behaviors that got them in to debt in the first place. Consolidating all of your debt will only go so far, and the behaviors that led to getting in to debt in the first place must be attacked going forward in order to prosper.