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One of the main ways in which credit card providers attract customers is by highlighting the convenience that you only have to make a minimum payment every month. Now, when the credit card outstanding balance becomes higher, it is tempting to pay the minimum amount to manage your account. Unfortunately, credit card debt tends to snowball quite easily as emergencies can crop up in your life at any time. You may avoid paying the late fee by making the minimum payment, but you still have to pay interest and it takes years to pay off the outstanding balance. As such, it is better to go for debt consolidation.
Credit card minimum payment will have minimal impact on principal outstanding
The minimum payment policy varies from one credit card provider to another. Typically, you will have to pay around 5 percent of the outstanding balance. If you have had a setback on the employment front, paying 5 percent of the balance might suit your current budget. However, there will not be any appreciable reduction in the principal amount. As credit card companies charge a higher interest rate of up to 36% p.a on the outstanding balance and it takes much longer to pay off the debt, interest paid out by you will be very high.
Credit card dues will take away your monthly savings
When you receive your credit card statement, you should try to pay the total outstanding amount by the specified date, the end of the free credit period, in order to avoid interest charges. The free credit period typically ranges from 45 to 55 days. As mentioned earlier, you can pay the minimum amount due by the pay by date and repay the outstanding balance in installments. However, the revolving credit facility comes with a cost. Interest is levied on the entire outstanding balance until the complete payment is made. This often upsets your monthly budget and prevents you from saving any money.
Debt consolidation will close all cards and convert into a single loan
If you are struggling to make even the minimum payment against your cards, then you must avail debt consolidation loan (a personal loan) to get rid of your credit card debt. When you take out such a loan, the lender transfers an amount that covers the outstanding balances against all your cards. You can use this money to pay off your credit card debts and start repaying the debt consolidation loan which comes with a lower rate of interest and longer repayment tenure.
Multiple payments to a single payment
This is the biggest advantage of using the financial strategy. You don’t have to deal with multiple credit card providers or track multiple payment dates. You need to deal only with the lender that has provided the debt consolidation loan. In addition to making it easier for you to manage your finances, this debt consolidation strategy enables you to enjoy peace of mind. Finally, when you are in a better position both financially and mentally, you will even start saving some money every month.
Note: CompareGULF & ConsultOMEGA is an online market research consultant, our experts would support you in choosing right financial choice and also loan products from the market. This blog should be used only for knowledge and information purposes. Consult with bankers before signing any agreement.