You might have heard about an online debt consolidation loan before, right?
Imagine you owe ₹5,00,000 across three credit cards, all charging 20% interest. You’re paying ₹1,00,000 every year just in interest.
That sounds like a lot!
A balance transfer credit card could help you avoid this extra cost, but is it the best option for debt consolidation? Let’s look into it.
How Does an Online Debt Consolidation Loan Work?
An online debt consolidation loan helps you combine all your credit card balances into one. This way, you only pay one monthly payment at a fixed interest rate.
Now, compare this to a balance transfer credit card, where you can transfer your existing balances to one card with a 0% interest rate for a limited time.
| Scenario | Amount in ₹ | Interest Rate | Monthly Payment ₹ | Interest After Introductory Period |
| Balance Transfer with 0% for 12 months | ₹5,00,000 | 0% | ₹41,667 | 18-24% |
| Failure to repay within 12 months | ₹5,00,000 | 18-24% | Varies | High-interest payments |
| Debt Consolidation Loan at 10% for 5 years | ₹5,00,000 | 10% | ₹21,250 | Fixed-rate throughout |
Let’s say you transfer ₹5,00,000 to a 0% card for 12 months. If you pay ₹41,667 each month, you can clear the debt within the interest-free period. But what if you can’t? Then the interest could jump to 18-24%, and you’re back to high-interest payments again.
Is that better than a fixed-rate debt consolidation loan? That depends on your repayment ability.
How to Use a Balance Transfer Credit Card
If you still think a balance transfer card is for you, follow these steps:
- Check your credit score: These cards are only available if you have a good CIBIL score.
- Calculate your savings: Make sure the transfer fee doesn’t outweigh the interest savings.
- Make a repayment plan: Stick to it to avoid paying more when the 0% period ends.
- Pay on time: Missing a payment could cause the interest rate to rise.
- Avoid using old credit cards: You don’t want to add more debt while paying off the old one.
Pros and Cons of a Balance Transfer Card
Here are some things to consider when using a balance transfer card:
- Pros:
- Save on interest
- Combine all your debts into one
- Quick debt clearance if you stay within the 0% interest period
- Cons:
- Transfer fees added to your debt
- High interest after the introductory period
- Requires discipline to avoid new debt
Should you choose an Online Debt Consolidation Loan?
If you have a larger debt or a longer time frame, an online debt consolidation loan may suit you better. For example, if you owe ₹10,00,000 and get a loan with a 10% interest rate over five years, you’ll have to pay around ₹21,250 each month.
This makes your debt more manageable without the risk of high interest after a few months.
Conclusion
Both balance transfer cards and online debt consolidation loans have their benefits. If you can pay off your debt quickly, a balance transfer card works. However, for long-term debt management, an online debt consolidation loan offers fixed payments and stability.
FAQs
- Can I transfer all my debt to a balance transfer card?
Yes, but the transfer fee applies, and it may depend on your credit limit. - How much does a balance transfer card cost?
Typically, it charges 3%-5% of the amount transferred. - Can I get an online debt consolidation loan with bad credit?
Yes, but you may get higher interest rates. - What happens if I miss a payment on my balance transfer card?
The 0% interest offer may end early, and you’ll have to pay the regular interest rate.
