Debt consolidation credit cards or personal loans? This is the question facing thousands of people riddled with debt every single day.
It’s not an easy decision to make because of the sheer magnitude of trying to pay off debt. That’s why we have written this article to help.
The difference between debt consolidation credit cards and personal loans:
When you take out a debt consolidation card, also called making a balance transfer to a new card you roll all your existing credit card debt into the new card. This balance card offers you better interest rates on purchases plus an introductory period of 0% credit for a specific term, usually six months.
The downfalls of using balance transfers is that when the honeymoon period is over, the interest rate will revert back to much higher rates, often more than traditional credit cards and this is the dangers of dealing with such a card. Unless you pay off your debt in full before the introductory period is over you will end up with more debt instead.
On the other hand, personal loans allow you to borrow money within a set time period, usually between three and five years. During that time you pay back your loan in monthly instalments which are set. This gives you the advantage of knowing how much money you need to save every month.
Comparison of Personal Loan Offers
Personal loans are often cheaper than debt consolidation credit cards because they allow you to repay a debt much sooner of done correctly. On an earlier post we have done a comparison between the two to show you how much money can be saved between the options while paying off your debt all the same.
The result has been rather interesting to say the least. To recap, let’s look at the following example of debt consolidation credit cards vs personal loans.
If you need to repay a larger debt, such as a home renovation, a car, a boat or a holiday overseas you are better served with a personal loan.
Comparison of Credit Cards vs Personal Loans
Look at the following example and see the massive difference in savings between the two:
- The cost of a 4 Year Citibank Personal Loan Repayment at 13.24%p.a.: ((538.94 times 48) plus 150) plus (7 times 48) = $26,355.12
- The cost of a 4 Year Citi Rewards Credit Card – Platinum Card Purchase Repayment at 20.99% p.a.: (607.01 times 48) plus (250 times 5) = $30,386.48
Both of these calculations take into account all ongoing fees. Plus we chose a credit card with a high credit limit to allow for the purchase amount chosen.
It is also apparent that over the span of four years one would require a massive amount of discipline not to use a credit card (other than repaying your debt balance,) it’s near impossible.
The Citibank Personal Loan interest rate is Fixed. Credit card interest rates are subject to change at practically any time the bank wishes, making them risky for long term loans.
So in the debate of debt consolidation credit cards vs personal loans it all depends on the size of your existing debt, your spending habits and the terms offered.
Comparison of Debt Consolidation Credit Cards
Rates last updated October 22nd, 2016.
- NAB Low Rate Credit Card
Balance transfer and purchase rate offers have been extended until 22 January 2017.
October 3rd, 2016
- Westpac Low Rate Card
Promotional BT period has been changed from 18 to 16 months and is valid until 30 January 2017.
October 12th, 2016
- CUA Platinum Credit Card
New offer of 25,000 bonus rewards points which is valid until 30 November 2016
October 21st, 2016