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Debt consolidation: A smart way to get on top of your debts

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Summer is always an expensive time of year. When the sun’s shining and the Christmas carols are jingling, it’s easy to forget about how much is going onto your credit card or loans.

If that sounds like you, now’s the time you’re probably feeling the pinch. But there is something you can do to help you get on top of your debts in 2019.

What is debt consolidation?

Debt consolidation involves taking out a personal loan that can be used to pay off multiple other debts.

There are a number of potential benefits of doing this:

Which debts should you tackle first?

Look at how much you’re paying in interest for any outstanding balances on store cards, credit cards, personal loans or any other debts. It makes sense to tackle the debts with the highest interest rates first.

Even if you have an existing personal loan on a similar interest rate, consolidating that amount with your other debts can still be beneficial as it allows you to manage your debts in one place, and helps you avoid multiple sets of fees.

Work out how much it could save you?

Say you currently have $10,000 in credit card debt and you pay 20%p.a. interest. If you only make the minimum repayments each month for the next 12 months, you will accumulate $2,000 in interest.

If you take out a $10,000 personal loan at 10%p.a. interest, the most you will accumulate in interest over the next 12 months is $1,000. However, most lenders will require you to pay down the loan gradually, which will save you even more interest.

How can I avoid getting into credit card trouble again?

A smart way to avoid expensive credit card debt is to use a debit card (like an IMB Visa Debit Card) for all of the things you usually use a credit card for. That way you’re spending your own money and paying no interest on your purchases.

Giving yourself a weekly budget (and sticking to it!) is another way to avoid getting into debt. To kick-start your 2019 budget try IMB’s Budget Calculator.

 

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