Debt transfer, simply put, is a debt exchange, replacing one with another. It is advantageous when the existing debt has high interest, and decides to exchange for a cheaper one. We often use to pay off credit card or bank overdraft debts . In these situations debt transfer is helpful as it can significantly lower your costs. Here’s an example of debt transfer:
Mr. John has a bank account with bank A. For a personal reason, he needed $ 10,000 within a few days and ended up using his pre-approved bank limit. Bank A charges an annual CET of 173.92% for overdraft use, with 12 installments in installments. This means that in one year, Mr. John will have to pay R $ 27,392.00 in total to bank A, and monthly he will have to pay R $ 2,282.67.
Although Mr. John used the overdraft for the emergency situation, he found the CET very high, and decided to transfer his debt by borrowing himself. In company B, where Mr. John applied for the personal loan for debt transfer, he obtained an annual CET of 48% for the same installment payment condition. Thus, the total debt amount was R $ 14,800.00, with the monthly installment of R $ 1,233.33. See below the comparative summary of two options.
Through this transfer of debt, Mr. John was able to reduce his total debt by R $ 12,592.00, and a monthly reduction of R $ 1,049.33.
The practice of debt transfer is not yet popular in Brazil, but it is a smart way to solve the financial problem. That’s why we have separated 4 tips to help you include the solution in your life:
1. Know your debt situation well
It is crucial to know how the current debt situation is to think of a solution. Thus, the following questions must be answered:
- What total amount do you currently owe? This is important because you can calculate how much would be required to pay it off;
- What is your CET? Still don’t know what CET means? It is the secret of interest rate and is the total debt. It corresponds to the sum of interest rate, charges and IOF. Learn more here ;
What is the value of each installment? How much do you spend monthly on your monthly income? If the installment is already more than half of your income, you really need to renegotiate the installments;
2. Don’t increase your debt further.
It is very important not to increase your debt further. If the cause comes from your credit card, stop spending your credit card limit. Otherwise, the situation will be out of control, causing the debt to snowball.
3. Research the best personal loan deals
Now that you know the financial situation well, it’s time to solve the problem. Research the options that offer the best CET, terms, and other benefits. If you find a loan offer that conditions are better, swap your bank debt for a smaller one.
4. Closely monitor loan repayments
Now that your debt is lower with the transfer, it is important not to lose control of the financial situation. The fact that CET has gotten smaller doesn’t mean you can spend more. Closely monitor the status of installment payments.
Tendico presents a good personal loan option by offering fair rates. Visit the site by clicking here .