MONEY CLINIC | I can’t get out of my credit card debt. Should I take out a consolidation loan?

The more money you are able to pay on your outstanding debt – the sooner you will become debt free.

I am 63 years old, still employed full-time, and need advice on credit card debt. I have three credit cards – all maxed out to the extent I pay the instalment and have to use the credit available to make through the month. I would like to know if getting a consolidation loan and settling these accounts is better in terms of interest, or will I be worse off? My credit score is 671, and none of my accounts is in arrears. The balance of all three credit cards, including one store card, is R65 000. The monthly interest, including charges, is R985 and the monthly payments I make are R4 000.I managed to pay off all personal loans, store cards, etc., but I can’t get out of my credit card debt, and it doesn’t help that the banks ignore my request to reduce my credit limit to zero.Kindly advise as my monthly income is less than my debts, I have taken on a side job to make ends meet, but it’s still not enough.

Neil Roets, founder and CEO of Debt Rescue, responds:

There are a few ways to look at dealing with a situation of settling debt.Though consolidation loans are an option, it is very important to look at two main factors – the repayment term and the interest rate, as it could end up costing significantly more.The very first step is to setup a budget, by splitting your information into three columns: all income; all expenses (excluding debt and including items such as rent, food, transport, insurances); and finally debt (the monthly minimum instalments).

This is the clearest way to see where any changes can be made to expenses, but also to ensure that it isn’t necessary to continue using the credit cards going forward, while trying to pay them off. And also, to identify how much extra is available to start paying off the accounts one by one.

Once this is done, the best way to deal with this situation is to start with one account, and focusing on settling it as fast as possible. What this would entail is paying the minimum required on the other two, and putting extra funds into the identified account, which should either be the one with the highest interest rate or the highest outstanding balance. Once this account is then paid-up, close the account, and then take all amounts that were paid the identified account, and apply it to the next one, and do the same once settled.

Questions may be edited for brevity and clarity.

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