Personal Loans vs. Credit Card Debt Consolidation

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. Not a good position to be in.

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.

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.

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In Australia, your best bet for a person loan would be Citibank, because it offers the most flexible and cheapest personal loan to suit the majority consumers.

A Citibank Personal Loan features:

• A highly competitive interest rate of 13.24%.
• Loan flexibility from $4000-$75,000.
• No hassle of a secured loan – enjoy the freedom of unsecured credit.
• Withdraw any repayment you’ve made over $500.
• A one-off fee of $150 on application, and ongoing $7 monthly fee.
• Lump sum repayments available.
• 1-5 year loan term option.

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 Citibank Platinum Card Purchase Repayment at 20.74% 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.

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.

Related posts:

1. GE Money Personal Loans including Debt Consolidation – Details & Application
2. Credit Card Debt Consolidation Loans
3. Debt Consolidation Loan – Consolidate your debt with Loan Consolidation
4. Trimming excess debt with credit balance transfers and personal loans
5. ANZ Debt Consolidation Using A Balance Transfer Or Personal Loan
6. Debt Consolidation Advice – Information and Services
7. GE Debt Consolidation Loan – Consolidate Car Loans, Credit Cards And Store Cards in to one