Thegreatest mess one can experience is to wallow in credit card debt. Credit cardsominously changed the spending habits of many.

The so-called ‘plastic’ is nolonger a status symbol. The parameters on the issuance of credit cards became lenient.Individuals belonging to the low to middle-incomegroups instantly obtained tremendous purchasing power. As a result, creditcard spending is on the rise in Malaysia.Facing the Financial ConsequenceThere’sactually nothing wrong with owning acredit card. Things that are previously unaffordable are within reach. Someeven upgrade their lifestyles because of the new found spending muscle. However,what comes with the purchasing power is a bigger responsibility to use theplastic wisely.

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Theharshest consequence of the careless useof the credit card is debt accumulation. Many succumb to emotional spendingonly to realize the situation has gotten of hand. The problem to minimize orpay off the debt sets in. The recourse is to avoid the imminent financial messand take decisive action.

Securing a Personal Loan to Pay Off Credit Card DebtAsolution taken by many to pay off credit card debts is to secure a personalloan.  However, keep in mind the verypurpose why you’re taking on the loan. Your objective is to clean up your creditcard debt while simultaneously curbing your spending. ·      Flat Rate versus FixedRate Beforetaking on a personal loan, analyze if that is the fitting move given yourcurrent financial condition. To begin with, there’s a whole lot of differencewhen it comes to interest rates.  o   Credit card rates are FIXED Rates usually range from 15% to 18%per annum or 1.25% to 1.

5% per month. Many credit card holders suffer fromexorbitant interest rates because they are uninformed as to how credit cardinterest is computed. Interest is compounded at the end ofeach day such that even if your balanceis diminishing after every payment, the interest computed is added to theoutstanding balance. The computation is repeated until the balance is fullyliquidated.  o   Personal loan rates areFLAT A personal loan uses a flat rate, whichmeans interest is computed based on the principal amount.   Thus, you will be paying a uniform amortization for the entire term ofthe loan.  ·      Comparing Fixed and FlatRates Forillustration purposes, let us assume that you have set a timetable of 2 years withinwhich to pay off your credit card balance amounting to RM10,000.

Assume toothat you can pay at least RM500 monthly.  Thereis a personal loan facility available at a rate of 5.2% per annum.

Should youconsider this as an option?__________________________________________________________          DebtBalance/Loan Amount           RM10,000                  RM10,000         Interest Rate                                       18%.0p.a.                5.2% p.a.         Term (in Months)                                    24                               24________________________________________________________________ Givethe assumptions, compare the minimum monthly payment you can afford to pay onyour credit card versus and the amortization on the personal loan.

 Min. Payment / Amortization      RM     499.24                 RM    460.00 TotalPayments / 2 years              RM11,981.

76                 RM11,040.00 TotalInterest Paid*                      RM   1,981.76                RM   1,040.00*TotalPayments Less Principal_____________________________________________________________________________ Theexample would show that the personal loan comes out as the better option.  Firstly, there’s already a huge disparitybetween the interest rates.

That should be your primary consideration. Never take on a personal loan where therate being offered is higher than that of your credit card. Clearly,you will benefit and save in terms of interest cost. Besides the loweramortization of RM460.00 versus the RM 499.24, the total difference of RM941.76is material.

Benefits to Using Personal Loan to Pay Off Credit CardDebt1.   Debtin one basket  It makes for good financial sense toconsolidate your credit card balances into one basket. Taking on a personalloan extinguishes your credit card balance and frees up your credit limit. Youcan reserve the use of your credit card for emergencies and necessities only.  2.   Debtmonitoring is easier Since the amortization is uniform forthe duration of the loan, it is easier to keep track of your debt. You’re notlikely to miss out on your loan payments and be consumed monitoring one or morecredit card bills. 3.

   Asavings tool Based on the example, the greatest benefitis that taking on a personal loan becomes a savings tool. Effectively, thesavings of RM941.76 translate to nearly 10% of the RM10,000 loan balance orprincipal. That’s a windfall for the smart saver.Disadvantages of Using a Personal Loan to Pay OffCredit Card Debt1.   Encouragedebt pile up  Thetest of financial maturity comes after paying off your credit card debt using apersonal loan. Unless you can exercise discipline in using your freed-up creditcard limit, you might as well skip the personal loan option.

 2.   Higherinterest rate Asmentioned earlier, it is not advisable to borrow and pay off your credit carddebt if the interest rate is higher. Maintain the status quo in this instancebut be sure to make timely payments on your bills to maintain a satisfactorycredit rating. 3.

   Hiddencharges and fees Besure to inquire from your personal loans provider about processing fees. Theremight be hidden or extra charges on top of the quoted interest rates. Lowerinterest rates might be enticing but with the addition of fees and othercharges, the ‘real’ cost might be higher in the end.The Credit Card Balance TransferAnotheralternative method to pay off your credit card debt is the so-called balancetransfer. This scheme is suitable in caseyour credit card balance has reached critical boundaries. You have to scout fora credit card company that offers lower interest rate and with low, if not zerobalance transfer rates. However,there’s a catch to a balance transfer scheme.

There is an expiry date of the transfer rate. The low rate is just acome on and apply for a specific period.The rate will soon jack up, matching or sometimes higher than your previouscredit card’s rate. Take control of spendingThespending power derived from the use of a credit card is superficial.

If left unrestrained,it can lead to financial disaster. Further, the issue of bankruptcy is aserious matter in Malaysia. Do not wait for your credit card debt to accumulateand be added to the bankruptcystatistic.

Deal with it quickly to have peaceof mind. It’s better to be free from debt than have financial stress.