A credit card can be a boon or a curse based on how you utilize it. When you have no control on your expenses for any reason, you will end up with a heap of debt. Debt can also be a result of poor management of payments. You may have 2 or 3 different credit cards and you may not keep track of the due dates on each of these cards. This may take you to a situation where you are overloaded with different penalties such as late payment and higher interest rates being charged on your bills.
One solution to handle snowballing credit card dues is to clear off all dues in one go using a personal loan. Majority of the credit cards available in Malaysia have an interest rate of 15% p.a. which is relatively higher than the interest rate applicable on a personal loan. Most personal loans come with interest rates ranging between 4.99% p.a. and 11% p.a. Settling your existing card balances and maintaining one single instalment with a lower rate of interest will help you clear your dues faster and save you money which otherwise would have been spent on servicing the interest on your credit card bills.
Let us consider a scenario where you have a combined debt of RM20,000 racked up through your credit cards. Assume the interest rate that you are paying is 16% p.a. If you could find a bank that offers personal loan at 7.68% p.a. without requiring a guarantor or a collateral, then it is a wise decision to clear the balance with the personal loan. Though you still have another loan to pay, you will be relieved from the stress of managing multiple high-interest payments and can also enjoy a longer tenure to pay off this personal loan. Not only do you have just one instalment to worry about, you also stand to save up to 8% p.a. on interest paid.
Prior to taking up a personal loan, first check to see if the interest rate you’re getting on the loan is lower than what you’re paying on your credit cards. Compare the monthly instalment of the loan and the combined payments on your credit card bills and see how much money you stand to save. If the difference is negligible, it is better that you continue making prompt payments on your credit card itself.
Another important point to note is that you make more than the minimum monthly payment on your credit cards. This way you can ensure your credit card dues don’t snowball into an unmanageable level. Making prompt payments and more than just the minimum monthly amount will not only help you stave off the burden of debt but will also keep your credit score healthy. Like they always say, “Prevention is better than cure”.