How to get rid of your credit card debt

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My credit card is out of control. Should I take out a personal loan to pay it off, or renew my mortgage?

If you’re struggling to pay off your credit card in full each month, you need to take action.

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Credit card interest rates are usually about 20 percent per year, so it won’t be long before a balance becomes a big deal.

There are a few ways to go about this.

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You can get a personal loan and use it to pay off your card. This sets a time frame for your payments. You know that if you sign up for a two-year loan, your debt will be gone at the end of that time. You don’t run the risk of withdrawing the money again, as you would if you tried to pay it off via your card.

The biggest problem with a personal loan is that you are not necessarily going to save a lot on interest payments.

Unsecured personal loans range from about 14 percent to 20 percent at most banks.

You could opt for a peer-to-peer lender like Harmoney, but they allocate interest based on risk, and if your credit card debt spirals out of control, you could be considered risky.

Take action to prevent credit card debt from spiraling out of control.

ANDREW QUILTY/STUFF

Take action to prevent credit card debt from spiraling out of control.

You can also switch to a low-interest credit card, such as the ASB Visa Light or BNZ Low Rate Mastercard. There are many options on the market – make sure you don’t pay a higher annual fee to achieve that lower rate.

If you have a mortgage, you can extend it to pay off your card. This will give you a lower interest rate, but there is a risk that you will spend the remainder of the term of your loan paying it back, costing you more in the long run.

Also, be careful with debt consolidation loans for this reason. Having just that one payment is easier to manage, but often they extend the loan term, reducing monthly payments but increasing the overall cost.

The best option might be to get a new card with a balance transfer deal, if you qualify.

This gives you a period when no interest is charged, to pay off the balance as quickly as possible. If you cannot get rid of the entire debt within that period, you can switch again to another bank.

Whatever you do, make sure that once you’re out of credit card debt, you don’t fall back into it.

Reduce your credit card limit to an amount you can easily pay off each month or cancel your cards completely.

Do you have a consumer or personal financing question? Email susan.edmunds@stuff.co.nz

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