A few years ago a friend of mine told me she was in $10,000 worth of credit card debt. “How!?” I asked. The answer was she didn’t really know as everything from having a baby to her car breaking down had swiped her into debt.
While all her extra cash (after rent, food and other bills) was going towards paying down the balance, $10k is no small sum and she was finding it all a little overwhelming, especially with an interest rate of 20% hanging over her head.
One option available to her was rolling her debt across to a 0% balance transfer card but there were two problems with this. Firstly, she wanted to pay it off over a longer period than what was generally offered with BT cards, and on top of this she also was looking for the security of a fixed interest rate, so her repayments would remain the same each month.
Thankfully there was another option that she soon discovered by doing a little online research – a low rate consolidation loan.
Here’s how my friend cleared her debt:
Step 1: She used an online comparison tool
After being charged a rate over 20%, she was done with high interest rates, so decided to compare personal loan deals online and find the lowest fixed rate loan possible that allowed extra repayments in case she came into extra cash from things like a work promotion and could pay off the loan early.
Step 2: She worked out how long she would need the loan for
Next she drew up a budget and what was left after all her everyday expenses like rent and bills, was the amount she would put towards the debt consolidation loan each month. She decided $500 a month was reasonable, which meant she would need to take out the loan for a period of 2 years.
Step 3: She set up regular deposits
Once she knew how much she would pay each month she set up a direct deposit in her bank account to the lender, so she didn’t have to think about repaying the loan – it was done automatically for her.
Step 4: She was debt free!
Once my friend cleared her debt she said it was like a “burden off my shoulders”. Fast forward to present day and she has cut up her credit card and is saving for her first home loan. The best part is after diligently repaying her loan over that 2 year period, her credit report is now in the green again.
If you, like my friend have felt the bite of high interest, visit Mozo’s debt consolidation section to see what better deals are out there that will help you say “good riddance!” to that debt sooner.