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Rolling up various credit card debts into a personal loan is one way to reduce the pressure of having to make multiple repayments, minimising interest rates and improving cash-flow.
In this video Finance Expert Sarah Riegelhuth explains the best ways of consolidating your debts.
This week we are talking about rolling up your credit card debt into a personal loan often referred to as consolidating or debt consolidation, this can be a really popular strategy that people use when they feel the pressure of their credit cards building up to much. Generally people get to a breaking point where they too stressed out and struggling to manage their credit cards and store cards and all the repayments so they up to roll all together to a personal loan, usually over a 5 to 7 year period. The intent is to reduce the interest they are paying and simplify their cash flow management so one monthly payment needs to be made.
In theory this idea seems like a great idea and when you run the numbers it is usually a better option because interest rates are personal loans are generally are about half that of credit cards sometimes even lower. The issue though is human behaviour. In most cases what happens is, all the debts are consolidated but not all the credit cards are cancelled so the cycle begins all over again. I have seen many clients in my years as a financial advisor who have a personal loan as a result of debt consolidation at one point in time and then and have several maxed out credit cards as well and probably other forms do debt. The reason being, they fixed part of the problem but didn’t fix the other bit, their behaviour. Unless someone is fully ready to stop spending and start saving and stick to their monthly debt payments, simply consolidating the debt will never ever work.
If you are in a position of being seriously ready to repay your debt and start building wealth then using a debt consolidation strategy may be a solution that can save you money and help you get debt free. The other option is using credit card balance transfers which is a whole other topic that we don’t have time for this week but just be aware there are catches of this strategy I don’t want you it be caught out with an even larger debt by trying to do the right thing so be really careful.
Well that’s all for this week, we’ll be back for more for more tips! See you then.