The financial system offers three alternatives to manage the consolidation of your credit card debts. Which one is the best?
The purchase of debt of one or several credit cards is a common mechanism among financial institutions. And it can be a very good business for your customers. Of course, as long as you take precautions.
The first thing is to understand what kind of financial operation is the purchase of a credit card.
For a bank, it is about getting your client to acquire all the institution’s products, credit cards, parallel lines, savings and checking accounts or credits. Also, to attract new customers, who would begin the relationship with the consolidation of their card debts.
For you as a customer, the purchase of debts can be:
- A lifeguard (there are so many debts that you are having a hard time paying);
- An efficient way to organize several commitments in one; Y
- A lower cost alternative to the debts you already have with the credit card.
What can banks offer you
For the purchase of credit card debt, financial institutions have designed three alternatives:
- A personal loan :
Suppose Miguel owes $ 30,000 pesos MX on his credit card. He has made several consumptions, has requested advances in cash and pays every month and, nevertheless, has the feeling that the debt falls very little. Miguel could access a personal loan at another bank. The bank would pay the debt and start a new business relationship.
- A new credit card with a parallel line
The entity would approve Miguel of a new card that would have two lines of credit: one for consumption and one for the loan. I would buy the debt and transfer it to the new credit card.
- A home equity loan
Miguel’s debt is high and offers the bank as collateral a mortgage on a property he owns.
Which is the best option
The best option will be the one that offers the best rate; the one that offers the best term/rate ratio.
In general, it can be said that financial institutions will offer “preferential rates” to Miguel. If not, what incentive would you have to accept the business?
So, the normal thing is that Miguel, initially, manages to pay less in interest than he now pays.
Parallel line or a mortgage guarantee be better?
The decision of who will make the purchase of your credit card debt will depend on the amount of credit you need, the time you need to pay it, the risk you want to take and the current conditions of your credit card.
- For example, the mortgage guarantee will be the loan with the best rate, the most term, but with the greatest risk (you are compromising your assets).
- A parallel line on your credit card will require a lot of discipline in consumption to try to pay the debt in the shortest possible time.
- A personal loan will offer you a good rate and a term up to 60 months, which will imply that you pay many months of interest.
I think a good advisor will help make the best decision. Not only will you evaluate the rate, but also the expenses and commissions. And it will seek to fulfill your objective.