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Take control of your credit card debt

Take control of your credit card debt

Is your credit card debt spiralling out of control? Are you struggling to cope with multiple credit card repayments? Don’t worry, you’re not alone.

According to research, around 70% of Australians have credit cards, that’s more than 16 million credit cards throughout the country, as of January 2017. The average credit card debt is around $3000, but the national credit card debt is huge, at over 32 billion dollars.1

While many Australians are successfully managing their credit card repayments, many would like to gain more control of their current debt.

Debt consolidation could be an option, but how does it work and what are the risks?

What is debt consolidation?

Debt consolidation is the act of rolling all your debts into one more manageable loan. Debt consolidation allows you to deal with one lender instead of several, and can simplify your debt repayments.

Methods of consolidation

Credit card transfer

Transferring your credit card debt onto one credit card is one way to consolidate the money you owe. A balance transfer allows you to transfer your credit card debts onto the one credit card and pay a lower interest rate, or a 0% interest rate for a certain term. Whether this method suits your financial situation will depend on how much debt you are in, and how many credit cards you can consolidate.

Personal loan

Another way to consolidate your debt is to take out an unsecured personal loan. This will allow you to roll all your outstanding debts into one loan, and one repayment.

Refinance your mortgage

If you’re a home owner and have enough equity in your home, refinancing and consolidating your debt with your home loan could be an option for you. Home loans have much lower interest rates and you can spread the repayments over the term of the loan.

The benefits to consolidation

Clearer understanding of when you will be debt free

If you are juggling multiple debts, it can be hard to see a light at the end of the tunnel. Consolidating your debt will give you a clearer timeline and give you a better understanding of when you will be debt free.

Reduce the fees and interest

If you have multiple credit cards, you are most likely paying multiple fees and multiple interest rates. By consolidating your card debt, you are eliminating the extra fees and could lower your interest charges.

Lower your stress

Depending on the amount of debt you have, managing multiple repayments can be overwhelming. It can be stressful coordinating all the multiple payments and due dates. Consolidating your debt can remove this stress and make your budget more manageable.

The risks when consolidating your debt

Over committing to repayments

It’s important to consider the repayments once you consolidate, and if you can afford them. If you over commit and cannot afford the repayments you may be digging yourself an even deeper hole. Before you consolidate you should speak to your financial advisor and ensure you can manage the repayments.

Fees and higher interest rates

Look out for added fees when taking out a consolidation loan. You need to ensure you are not going to end up paying more in interest charges and loan fees. It’s also important to consider early payment penalties or charges on your existing debt, which could make the consolidation a costly exercise.

Lengthy loan terms

While it may seem appealing to roll your debts onto your home loan, you need to consider the loan term. While the repayments may be reduced, because of the longer term you could end up paying more interest in the long run.

Adding more debt

Once you have consolidated your debt it can be easy to fall into the trap of taking on more debt through additional loans or credit cards. You need to be strong and stay on track to reduce the money you owe.

 Good debt reduction habits

  • Pay off the highest interest rate cards first
  • Always make more than the minimum repayment
  • Lower your credit card limits or cancel cards as you pay them off

 

If you’d like more specific information on consolidating your debt, give us a call at Finance Detective on (08) 9289 7777 or email info@nullfinancedetective.com.au.

 

  1. https://www.finder.com.au/credit-cards/credit-card-statistics and RBA