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Ask Credit Card Finder: Should I consolidate my credit card debt?

Posted: 31 October 2018 8:00 am
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Is it better to pay off credit cards separately or move the balances onto a single, new account?

Hi guys,
At the moment, I have two interest-free credit cards owing $13,000 collectively. Is it best to pay these off as is, or should I roll them into one interest-free loan to pay off at the same time?
Thanks,
Interest-free fan

There isn’t really a single answer to this question because what is affordable and manageable for you will vary based on your circumstances and goals. So, to help you choose an option, let’s take a look at each of them.

Paying off each credit card as is

There are a few very compelling reasons to consider this option. First, if you still have a few months left of the introductory 0% p.a. interest rates on each card, paying off the balances as they are will help you make the most of these interest-free periods.

Second, if you want to keep both of these cards and continue using them, then applying for yet another account could lead to more fees and a greater risk of debt in the future.

Also, if you apply for a balance transfer credit card, you would have to get approved for a credit limit of at least $13,000 in order to move all your debt over. Some cards only allow you to transfer a percentage of your approved credit limit, which could leave you with debt across several accounts even if you’re approved for a $13,000 limit.

With stricter credit limit regulations coming into effect in January 2019, it could become even more difficult to get a high enough credit limit for this type of balance transfer. So, make sure you take that into account when you’re deciding between these options.

Consolidating your debts

This would make the repayments more straightforward because you’d only have one balance to manage. This also means you’d only have to make a single repayment each month, instead of juggling different due dates for both your current credit cards.

If you rolled these debts onto a credit card that offers 0% p.a. on balance transfers, it would also give you the opportunity to pay off the balance interest-free during the introductory period. However, you still need to think about whether the new card applies a one-off balance transfer fee or annual fee that could add to your upfront costs.

The size of your debt makes a difference too. If you move $13,000 to a new balance transfer credit card with a 3% minimum payment, you’d have to pay at least $390 for the first month (and a similar, but decreasing, amount each month after that). If you only paid $390 per month, it would take you over 33 months to clear your balance – and it’s very unlikely you’ll find an interest-free offer that lasts that long.

So ideally, you would pay more than the minimum amount each month. Paying a higher amount could also help you avoid interest charges altogether, depending on the length of the balance transfer offer. For example, if you got a card that offered 0% p.a. for 24 months, paying around $550 per month would see you clear that debt within the introductory period.

What about other loans?

Unfortunately, there are very few other consolidation options that give you an interest-free period, although you could consider a personal loan with a low interest rate instead. This might be a useful option if you prefer to pay off debt in fixed, monthly instalments.

While consolidating debt with a 0% p.a. balance transfer offer is a popular way to save on interest charges, the best option will always be the one that makes the most financial sense for you. So think about both of these options and, once you’ve decided, calculate a monthly repayment amount that is affordable and manageable based on your circumstances.

Ask Credit Card Finder is a weekly column written by finder’s credit card experts Amy Bradney-George and Sally McMullen. All rates and fees are correct at time of publication and we only give general advice.

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