Transitioning from college to the real world is quite hard. Adults always said that school was the best part of life, and that really hits home as soon as you enter the world. There are institutions that have existed for centuries, and you have to deal with them despite having zero knowledge on credit, debt, loans, or how money works.
Plus, life has a way of dealing with everything all at once, and it’s on you to find your way out. That’s a story that happens to everyone. You get out of school, and you think that the world is full of sunshine and rainbows. Then, out of the blue, your car breaks down, and you have to go into credit card debt in order to fix it.
It’s a shocker if you’ve never been in debt before. It takes only a day to go from being a financially secure student to being in debt. However, it’s easy to pay it off the first time, and you can do it in a couple of months if you secured a job beforehand. Click on this link to read more.
But that’s when some thoughts start going through your mind. Why would somebody invent credit cards if you can go so much into debt that you can’t pay it off? That’s how a perfect world will work, right? Well, the reality is quite different than what most people think, and many people have lifelong problems with medical bills, getting fired, or even some unplanned emergencies.
That’s why it’s important to learn these kinds of lessons early. You always need to pay off your credit card fully instead of carrying all that negative baggage. There are two ways in which that can be done, especially if you have a card with high interest.
The first thing is refinancing, and the second thing is consolidation. They are more or less the same since the primal idea is shared between the two. You get to exchange your high-interest loan for something much more manageable, and you get to do it with a lower interest.
However, the small differences between the two need to be explained, and you need to know about the pros and the cons before you make the decision.
What is credit card refinancing?
This is the procedure where you move all of your card balance from one card to another, but with better terms. It seems quite simple, and it really is. The ideal scenario would be a card that has 0 percent interest. Let’s say that you’re already ten grand in debt, and your credit card is set at 20 percent interest.
In an ideal scenario, you could change that debt to a company that will charge you zero interest. This means that you will save 20 percent in the first year, which comes around to 2 000 dollars. That’s a lot of savings. Since that’s impossible, the next best thing would be to opt for something more reasonable, such as 10 percent.
Even that will save you a thousand bucks in the first year, and if you catch a nice promotion, you could even drop that down to 3 or 5 percent. Places like av kredittkortgjeld are a source of great information. This makes it much easier since your monthly savings will be lower.
Sure, there is a one-time fee when you do the transfer, but that’s nothing in comparison to the big sums that people can get into. You should keep in mind that the average rate for this kind of deal is anywhere from 15 to 17 percent. If you find a good deal, make use of it.
What is debt consolidation?
This is the procedure where you pay off your credit cards with another loan. When someone mentions consolidation, you usually think of someone who has multiple small loans and combines them into a single one.
That big one will cover all of the smaller ones, and it will make it easier to remember, and in many cases, have a lower interest rate. This means that you will finish paying off everything for cheaper. However, this is usually done by combining everything into a personal loan.
The thing about personal loans is that they don’t ask you to stake your house or a card. For that reason, the interest rates are higher, and they can range anywhere from 6 to 30 percent. You get a large sum at the beginning, and then you pay monthly fees over a period of a couple of years.
Even though personal loans have a reputation of having high rates, credit cards are much worse. For that reason, make sure to keep your credit score at a healthy margin, above 750 points. This will ensure that you get the best rate since that is the main determinator during this procedure.
What are the pros and cons?
When it comes to refinancing, the best thing is that you won’t be paying any interest in the first year to a year and a half. That’s the duration of a promotional period. You can try your best to finish everything in that timeframe, and you will be good to go.
On the other hand, the main con is that you need to pay a balance transfer fee, which is never marketed. This is like an ace in the sleeve of the bank. Plus, if you fail to complete all of the payments in the given timeframe, the interest can skyrocket up to 25 percent.
On the other hand, consolidation lumps everything together in one fixed installment. This means that as long as you make the fixed payments on time, you won’t have anything to worry about. Plus, the marketing of these types of payments is better since they advertise no hidden fees, which is great for the consumers.
If you lose your job in the meantime, you can also get protection which means that you can hold off certain payments. They give you some time to get back on your feet and then go back to paying the fixed fee. This is the best option for people who have a stable financial history.