I have around $20k in debt spread over 5-6 credit cards. Is it better to pay them off one at a time, slowly, or take a credit consolidation loan, pay them all off, and have one payment a month? - Seedly
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Anonymous

Asked on 30 Dec 2020

I have around $20k in debt spread over 5-6 credit cards. Is it better to pay them off one at a time, slowly, or take a credit consolidation loan, pay them all off, and have one payment a month?

I have been making the minimum payments, plus a little, but the interest I'm being charged is killing me. Thanks in advance for your thoughts!

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    The barrier to getting approved for debt consolidation is pretty high - your total consumer debt needs to be 12 months or more of your pay.

    That's the reason most people can't get out of debt easily using consolidation plan.

    So unless your monthly salary is around 20k/12 ~ 1.7k, the banks won't approve your debt consolidation plan unless they are very very nice.

    For really practical advice... you probably have credit cards from different banks. I would suggest

    1) if you can live without the cards, cut them up, so you stop charging on them, and focus on paying them down.

    2) if you think you just need to rein in control, pick one card, and fill up form to lower your credit limit (with that card issuing bank) to 50% or 1/3 of your monthly pay. That way, the upper limit of what you can charge is pre-determined, and keeps the debt from growing exponential. Cut up all other cards.

    3) most credit cards in Singapore charge between 24% to 27% interest rates, so I find it just more practical to target clearing off the smallest balance (except on the card you want to keep). That way you see more progress, and keeps you motivated to stay on course.

    4) once you cleared off one card, keep paying minimums on all, and apply all your efforts to clearing the next smallest balance.

    Stay cool and focused. Paying off credit card balances is like making a 26% return per year (in terms of interest you didn't have to pay).

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    Better to pay them all off one shot. Interest rate is daylight robbery, don't delay further.

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    If you are unable to pay it off fully, taking a debt consolidation plan is always better. You cut the interests you are paying by 70%. If you manage to save more money, you can pay off the debt consolidation plan earlier too (with a small charge, but less than the interests).

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    ZY

    Level 6. Master

    Answered on 30 Dec 2020

    When most credit cards charge 20-30% interest per annum and debt consolidation plan only charges <5% per annum, I think best to go with debt consolidation.

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    SW

    Shaun WQ Lim

    Level 8. Wizard

    Answered on 30 Dec 2020

    Please reach out to CCS for more practical and better advice.

    https://www.ccs.org.sg/get-help/

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