Consolidating debt is a great idea if you have multiple debts to deal with. Not only will it help simplify your monthly payments, but it could also save you money. Here we will consider credit cards and personal loans as two methods you can utilise to hold your debt in one place and use debt consolidation to simplify your existing debts.
Consolidating debt onto a credit card
You can use a credit card to consolidate multiple credit card debts and save money on interest paid on higher rate debt. In order to do this you should apply for a new free balance transfer credit card and transfer all your existing high interest credit card balances to this one card. Free balance transfer credit cards offer a 0% interest rate on balance transfers for a fixed period of up to one year. Using this type of credit card can give you the time you need to pay off the debt balance, without having to worry about expensive interest payments.
Once the 0% promotional period is over, the credit card will revert to a higher interest rate and this is where you could get caught out. If you are unable to pay off the transferred balance within the specified time-frame then using the free balance transfer method of debt consolidation could actually end up costing you more. Using a 0% balance transfer card to transfer and consolidate existing credit card debts is generally only a good idea if you can be confident that the debt will be fully paid off before the promotional period ends and high interest rates and fees start applying to your balance.
Consolidating debt using a personal loan
A personal loan can allow you to borrow a fixed amount of money and repay it over a specified time period. The amount could vary depending on your personal circumstances and the time period in which you must repay the loan is generally 3-5 years. You pay the money back in fixed instalments, so the monthly payment on the loan will remain the same for the specified time period. It is possible to use a personal loan as a debt consolidation tool by using the loan to pay off all your existing debts, leaving you with only the personal loan itself to pay off.
Using a personal loan could be particularly suitable for people who lack financial self-discipline. The fixed monthly payments mean that you can’t just get away with making the minimum payment like you can with a credit card. You must make every monthly payment on the loan until it is fully repaid, failure to keep to the loan agreement could have serious consequences.
Choosing the most suitable method of debt consolidation depends on the person. Overall, using a free balance transfer to clear debt is the cheapest option, but only if you can commit to clearing your debt within the short promotional period. On the other hand personal loans can help consolidate all kinds of existing debts, but you will have to pay back interest on the loan too.
If you’re considering consolidating your debt using a credit card or personal loan, be sure to consider all your options and make the choice that best suits your situation and needs.
