Balance transfer loans are specifically designed to help you pay all debts you may have at once. The process is fairly straightforward: you get a loan, list the creditors that need to be paid, and the amount each one should get. After you’ve covered all the eligible creditors, the rest of the loan goes to your account.
Balance transfer loans usually have a low annual percentage rate (APR) that doesn’t change over time. They also have fixed monthly payments which differentiates them from credit cards. Besides the typically lower interest rates, balance transfer loans are distinct from cash loans in that the money goes directly to creditors, whereas a cash loan is deposited entirely into your account.
Another attribute of balance transfer loans are the characteristic “grace periods.” This interest-free period usually lasts up to 12 months after you get your loan, and during this time you will make monthly payments without any interest accruing. If you can pay off the entire loan during the grace period you can avoid a lot of additional interest charges.
In contrast, a “debt consolidation” plan doesn’t typically offer a grace period, but the interest rates would likely be lower than that of a balance transfer loan after the grace period ends. Hence, debt consolidation could be a better choice if you intend to pay it off gradually over an extended period.
When it comes to the amount of money you owe to lenders, there are limits to how much you can pay through a balance transfer loan. Additionally, some creditors can’t be paid using this method.