Credit Card Debt Consolidation Loan or Balance Transfer - What is the Difference

If you owe thousands of dollars on your credit cards, then credit card debt consolidation is regarded as the first step towards getting rid of this debt. A consolidation loan is one of the ways of consolidating credit card debt. Another alternative is to go for a balance transfer to another credit card with a lower interest rate.

In fact, due to the publicity by credit card suppliers, balance transfers seem to be more talked about than consolidation loans. Some people kind of forget about these loans being available. However, for some people the best plan is a credit card debt consolidation loan.

What is a credit card debt consolidation loan?

Put simply it is a low interest loan that you apply for with a bank or financial institution in order to clear off your high interest credit card debt. In some ways a credit card debt consolidation loan is based on the same principle as balance transfers i.e. moving from one or more high interest debts to a low interest one.

This loan has to be paid back in monthly installments and as per the terms and conditions agreed between you and the dispenser of the loan.

In general terms this loan is an unsecured loan i.e. doesn’t require you to pledge any security. However, if you have a really bad credit history and you want go for credit card debt settlement using a consolidation loan, the credit card debt consolidation loan will take the form of a secured loan.

A secured loan requires you to pledge a security e.g. the home owned by you or something else that has a value which is comparable to your loan amount. So, the worse your credit rating is, the more difficult it is to get a consolidation loan.

Though balance transfers and credit card debt consolidation loans have the same objective behind them, the consolidation loan is sometimes considered better because you end up closing most of your credit card accounts which have been the main culprit in landing you in this difficult situation.

However, balance transfers have their own advantages which are not available with credit card debt consolidation loans. You need to decide which is better for you in your situation or which you prefer.