With interest rates on the rise again, so are your loan repayments … and that’s a big hit on your family budget. So, now is the time to look at better managing your debt and trying to reduce your most expensive loans.
Credit card debt can be a tough burden to carry, especially when unnecessarily high interest rates continue to compound and grow the interest cost each month. Throw in a mortgage (if you have one), another credit card or two and things can quickly appear unmanageable.
If this is a bit too close to the bone, it could be time to consolidate your debt. This means bringing it all together onto the lowest possible rate and setting up a payment plan to wipe the slate clean.
You’ve got three main options:
1. Combine debts on a personal loan
The key benefit of a personal loan is that it has a set term. That means repayments are calculated so that at the end of the loan period the debt is cleared.
While you might still pay an interest rate of 8 per cent compared with 14 per cent, that’s likely to be lower than your credit card rate – and the fixed term could deliver a bigger saving by ensuring you clear the balance once and for all.
2. Transfer balances onto a low rate credit card
This is a popular option because the transferred balance often comes with an interest-free period, sometimes as long as 14 months. The key to making it work is setting up a structured repayment plan – much like you would with a personal loan – to ensure the debt is cleared within that interest-free window.
Just be aware that once that interest-free period ends, the balance will revert to the normal interest rate, so you might find yourself rolling the balance over again, which can incur costs and have credit history implications.
3. Consolidate all debts into your mortgage
If you have a mortgage and have accrued a bit of equity in the property, this approach can be a super interest saver. But, just like with credit card balance transfers, you need to have the discipline to increase mortgage repayments to clear the debt.
What’s right for you?
Picking the best option involves drawing up a budget, being honest about your self-control when it comes to spending and making repayments, and then finding the best deal on offer.
Remember too that debt consolidation isn’t a magic fix – it’s fundamentally a tool to help you regain control.
The real savings come from sticking to your budgeting and making those repayments on time, avoiding new high-interest debt, and committing to changing certain financial behaviours which have derailed you in the past, such as spending impulsively, or emotionally to “reward” yourself.
The worst thing you can do is turn a blind eye to your debt when interest rates are climbing and ignoring it so it gets worse. But by taking the time to look at your finances and act strategically now, you can reduce financial stress, protect your credit score, and free up more of your budget for the things that really matter.
The sooner you take control, the sooner you can stop debt from controlling you.
