Why it’s not always cost efficient to use personal loan to clear credit card debt
The subject matter has become a common scenario among credit card debtors. Taking a personal loan to settle credit card sales method has also been adopted by banks in pushing their personal loan product. But is that wise? Key question – is the total sum paid to settle the personal loan actually less than the sum which would otherwise be paid to settle the credit card debts?
For that, a few factors need to considered. Firstly, the tenor; while credit cards have an indefinite tenor with a minimum of 5% of outstanding balance to be paid, a personal loan offers a range of between 1-7 years for repayment. This sounds better. Secondly, and more importantly, what is the actual annual interest rate of the personal loan (which differs from the nominal fixed rate quoted for personal loan) as compared to the annual interest rate of the credit card, which is about 18%?
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