Debt Consolidation: The Best Option for Clearing Credit Card Debts
There is no doubt that credit card debts are the most difficult ones to clear. This is because those plastic cards tend to charge the highest interest of all. The average annual rate of a credit card is pegged at 19.1%. And that can add as much as 48.6% to your original credit card balance if you’re not looking.
There are several options currently available right now to clear out credit card debts. For one, there’s the 0% balance transfer to another credit card. However, that option doesn’t necessarily offer the best choice. Transferring your credit card balance to yet another credit card will only work if you can pay off your balance within the period the other card company requires of you. If you fail to do that, the same interest rates will apply. Worse, you will also have to pay for the 3% transfer fee.
The best option remains to be debt consolidation. This method involves the application of a personal loan that will cover all of your credit card debts. Even if you have more than three credit cards to clear out, this method will still work.
Debt consolidation is better simply because it imposes a very low interest rate on your outstanding balance. Instead of the usual 19.1% that most credit card companies charge, you will pay as low as 4.7% for this one. For a loan amount of £6,100 paid in a span of 5 years, your balance will only accrue a total of £801.19 in interest. That is way below the £2,924 that you’ll have to pay if you use the 0% balance transfer scheme or simply stick it out with your regular credit card payments. The only other charge that you have to pay is the £100 borrowing fee.
Debt consolidation offered through a personal loan is also more flexible. You can set the loan terms so you can further decrease your monthly payments. For example, you want to pay all of your debts in a span of 5 years. The amount that you have to pay every month will be duly computed along with interest. Using the £6,100 loan as an example, all you have to pay is £116.69 monthly for 5 years, and not £156, which is the minimum payment amount of your credit card. You can define the loan term by extending it to 7 years or shortening it to 3 years, whichever suits you best.
It pays to know how the interest rate on your credit card is computed so you’ll know if you are getting anywhere on repayment. If all you can pay is the minimum monthly payment each month, consider debt consolidation seriously. With it, you can shell out the same amount and yet clear out the debt much faster, simply because it offers a much lower interest rate.
A big thank you to Zopa who researched and provided the data for this article