Low Interest Personal Loans Can Be Used To Consolidate Debt

Post by Sharat on October 21, 2018 · Under loans · Comments Off on Low Interest Personal Loans Can Be Used To Consolidate Debt 

According to the latest data, nearly half of all Australian credit card holder say they find it difficult to make payments that exceed their minimum monthly repayment on their outstanding balance. Not only do these borrowers struggle to make the minimum payment they also seem to be unable to pay down their debt during the interest free period. An ASIC report published recently found that the total outstanding credit card debt in Australia is $45 billion.

Revolving balance

The buy now pay later mentality is likely to have borrowers end up in hot water rather quickly. Instead of paying down debt, they only make the minimum payment on their credit cards and borrowers quickly enter into what is known as “revolving balance”. This is effectively a situation where debt continues to rise as quickly as the balance is paid down. A borrower who made the minimum 2 per cent repayment on a credit card balance of $5,000 with an average interest rate of 16.9 per cent would take 29 years to clear the debt and would ultimately end up paying $14,996.

A savvy solution or a bigger burden?

Instead of borrowing using a credit card, many Australians seem to be opting for low rate personal loans instead. So far this year, the number of debt consolidation loan applications has risen to its highest level since the product was introduced in 2014. Personal loans are a great way to pay off outstanding debt and consolidate into a single payment. This type of borrowing has a set repayment plan that is structured to reduce the amount owed.

Discipline and commitment

Currently there are some excellent low rate personal loan options available which means the amount of interest paid will be kept to a minimum. In contrast to credit cards, there is no annual fee that needs to be paid either. Whilst a debt consolidation loan may seem like the answer to many people’s prayers, the final result will depend on the individual borrowers themselves. For debt consolidation to work, borrowers need to cut up their credit card because there simply is no point in taking out a personal loan only to increase the amount borrowed through further spending on a credit card. Debt consolidation requires commitment and discipline in order to succeed.

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