I used to think debt was debt. Then I got stuck with a credit card bill and a HECS debt, and I realized that debt is as varied as colours in the rainbow. There’s dead debt; debt that satisfies immediately, without any real long-term benefit. Often this is the kind of debt that comes embodied in a piece of plastic and can be very hard to shift. Then there’s debt garnered for an asset; a home, an education, a small business. A debt that you take on in a rational manner in order to further yourself somehow. Both have to be paid back. So what kind of debt is a personal loan, when taken out in order to get on top of your dead debt, which is sitting there, cruelly gathering interest?
The Nature Of Credit
Credit cards have advantages, otherwise they wouldn’t exist. I (credit card cynic, obviously) suspect that their enduring appeal has more to do with their provision for instant gratification with delayed, but protracted, pain. Eventually, it can feel like we’re dependent on credit cards, sometimes for things as basic as groceries or as a supplementary cash source. It’s at that moment you need to look at the interest you are paying and work out how much it is hampering your ability to get on top of your credit cards. If you can’t pay off your balance in full every month, perhaps you have some issues in handling credit. Maybe time to look into a personal loan.
Personal loans have none of the appeal of credit cards, for those of us who are slightly problem users. There is nothing instant about them- they can take a while to get approved, and then take a while to get into a bank account and, at the end of it all, we don’t really ‘get’ anything for it except peace of mind and a new control of our finances. Rationally, we all know that’s worth it’s weight in gold but emotionally it can be hard to take on. But, as mentioned above, as soon as you’ve started to lose a handle on your cards, look at using a consolidated loan because, although getting all your balances onto one card can be a good start, it isn’t necessarily going to correct your bad habits.
The advantages of moving across to a personal loan as part of your debt consolidation are manifold. You’ll have a fixed rate over a period of years, which you can easily budget for and anticipate. It will help you to control your finances in other areas of your life, and will free you up to make more long-term financial decisions. Similarly, you could save thousands of dollars on interest if you roll it over into a personal loan, as opposed to continuing to pay your minimum repayments or just above. And it removes the presence of credit in your life. Part of my problem with a credit card is that I use it when I am emotionally spending, when I need to spend money that I just don’t have. The easiest way for me to fix that problem is simply to remove credit from my life. And a personal loan is a sensible way to return to the reality of money- paying off a credit card debt week by week, over a couple of years, can be pretty sobering, especially when all that you purchased on it has fallen by the wayside.
Getting The Loan
Shop around for the loan, because there are a lot of good options out there. The first step would probably be talking to your bank, or whoever you have the credit card with, and discussing options. Then check out some online calculators and comparisons. Pull together your financials, and stick with a repayment scheme that is realistic and not likely to hamper all your other financial goals in the process.