Debt Consolidation - Personal Loan or Credit Card?
Credit card balance transfers involve rolling your credit card debts onto a low or no-interest card. So, for example, you can consolidate multiple outstanding amounts on credit cards that are charging you a high interest into a credit card that offers low or no interest for a certain period. This can be for the first 6 months or even over the life of the outstanding balance. The trick is that once the promotional period is over, the interest charged normally reverts to a higher rate. If you haven't paid the balance off in the specified time frame, this can eat into any savings you made up to that point. Personal loans generally allow you to borrow a fixed amount of money to be repaid in fixed instalments over a set period of time. With fixed terms somewhere between 3 to 5 years, borrowers are forced to pay within the stipulated period. This can be advantageous to those who lack the discipline needed to repay their debts on time, especially with a credit card where only repaying the minimum each month will see the debt last for decades. DEBT CONSOLIDATION CALCULATIONThe tables below examine the difference between repaying a loan of $10,000 over 3 years using a 10% personal loan and a 12% low rate credit card with a balance transfer period of 6 months at an introductory rate of 0%.By looking at the total interest paid, the consumer would be better off by an estimated $260 taking out the credit card with its 6 months balance transfer offer of 0% instead of the personal loan. However, as the second table clearly shows, if the consumer fails to repay the fixed monthly repayments of $322.90 on the credit card and elects instead to pay only the minimum, he or she will take more than 17 years to repay the debt in full. Apart from cost considerations, individuals should strongly consider their own spending habits and their ability to repay their debts on time. If you are prone to overspending or not paying on time, you are better off with a personal loan, as it forces you to make regular repayments. The borrowing period is another important consideration. It if takes you a long time to repay your debt, you might end up paying more interest on your credit card than a personal loan. This is very much brought home when the interest-free period ends and your credit card reverts to charging a higher interest rate. 
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