Debtors caught out by debt consolidation

People who take a loan to consolidate and pay off their credit cards and unsecured loans can actually end up paying more in the long run. Refinancing and consolidating debts adds debts on top debts and can therefore add to the overall interest burden and keep the debt going for longer. Debtors also often find spending on their newly freed up credit cards irresistible, adding to the overall burden.

An alternative strategy is to focus on paying off the debt with the highest interest rate first. When that debt is paid off, add the repayment amount to the repayments due on the next highest rate debt.

Source: Sydney Morning Herald

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