Can a personal loan be used for paying credit cards?

Personal Finance · 10 Dec 2019

It's no secret that credit card debt is a huge problem in Australia. Most adults now have a credit card, and for many, just the one is not enough.

It's no secret that credit card debt is a huge problem in Australia. Most adults now have a credit card, and for many, just the one is not enough. And that's where the problems can start.

Credit cards are very easy to sign up for and offer tantalising promotions to hook customers in, before often charging steep interest rates not too long afterwards. Interest rates that, were they to be offered on a person loan, most people would reject in an instant.

From there, debt can grow quickly. While it can seem all too easy to add a purchase to your card, these soon add up and can be hard to keep on top of. Hard, but not impossible.

Credit card debt in Australia

Australians are struggling with credit card debt more than ever before, and the numbers are steadily getting more worrying.

According to Finder, there are more than 16 million credit cards in circulation in Australia. With a population of just 25 million (including children), that's an incredibly high number. The research goes on to show that the average balance per card is $3,161. A staggering number, especially when you consider how many cards must be paid off regularly.

In fact, the ABC reported that 18.5% of credit card holders – almost 2 million people in this country – are struggling with their debts. Consumers also reportedly waste a collective $621m because the credit card they sign up for isn't the best option for them.

Credit cards are a big commitment, but changing to a more suitable finance option is possible. If you're one of the many Australians struggling with credit card debt, there are always ways out.

The ease of accumulating credit card debt

Credit card debt sneaks up on most people. They might sign up for a card with an interest-free period and expect to have paid it off by the time that expires, but circumstances can quickly change.

Many credit card users with good intentions find that they slide into bad spending habits or give in to temptation and overspend, which can see them going past the interest-free period with money still owing. From there, their debt continues to grow.

After the thrill of having easy credit, it's easy to get sucked into a second card, then a third. Each accumulates more debt and, if you only make minimum repayments on what you owe, you're going to end up accumulating a lot of interest. This makes it even harder to get back into the black.

Once you're dealing with a few cards, you'll have more payments to make and more deadlines to keep track of. If you miss one, that adds a fee to your debt which just makes the whole situation worse. Pretty soon, you could find yourself behind on multiple payments and it can be hard to see a way out.

How to make credit card debt more manageable

Although credit card debt can be messy, it's not permanent. Perhaps the easiest way to make it more manageable is with a debt consolidation loan.

This has two main benefits:

  • it neatly combines all your debt into one place
  • it's likely to reduce your interest rate and your monthly repayments

By combining all of your debt into a single loan, it's a lot easier to manage. For starters, you only have one repayment date to remember. This makes it harder to miss, easier to save for and gives you a clearer idea of your financial situation.

On top of the financial benefits, it's also a lot less stressful.

A debt consolidation loan helps only if the interest rate you are offered is lower than the rate you’re paying on the credit card. You may want to consider only only consolidating the high rate (more than 20%) cards. You could consider not consolidating leave the lower rate (12%) cards, but pay them off.

Another benefit – both financially and mentally – is that your consolidation loan has a fixed term. So long as you meet all of your repayments, you not only know that the debt will be cleared, but exactly when. With credit cards, there's no fixed term and no end in sight – even if you don't make another purchase.

Of course, should you want to pay off your debt consolidation loan sooner, you can. Read our tips on paying back loans more quickly.

Applying for debt consolidation loans on Harmoney

Harmoney offers a range of personal loan options, including debt consolidation loans. Our loans are funded through an investor marketplace and are all unsecured, meaning you don't run the risk of losing your car or home when you're getting back on your feet.

Get an estimate of how much your repayments would be for your whole debt with our personal loan calculator.

Other articles you might like:

What is debt consolidation and is it right for you?

Spring clean your finances

Managing your money in your 30s and 40s


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