With easy access to store loans, store credit and high interest credit cards it’s no wonder that a lot of people are drowning in debt. If you’ve been searching for a way to get your finances in order, and consolidate your debts, you have a few options. You can:

• apply for a credit card balance transfer on a low or no rate credit card
• apply for a credit card balance transfer using a standard rate credit card
• or apply for a personal loan

Here’s a brief run down of the pros and cons for each.

Credit Cards

Credit card balance transfers have become really popular among consumers who want to pay a chunk off their balance or wipe their debt altogether.

Credit Card Pros:

• The application process is straightforward and you’ll generally have fast access to the money you need.
• You can request that the lender automatically perform a balance transfer so you don’t have to worry about doing it.
• Most financial lenders offer low/no rate credit cards, particularly for balance transfers.
• You’re free to make payments above what is required without penalty (you can pay your debt off quicker).
• Some credit cards have low/no interest rates for specified periods.

Credit Card Cons:

• If you’re not disciplined with your repayments, a credit card can wind up costing you a lot more.
• You must be aware of the interest rate you’re being charged and any special conditions or introductory time constraints.
• Your credit limit may be lower than you require. The amount you’re offered may depend on your financial situation, your ability to pay back the balance and your history with the bank.

Personal Loans

Personal loans have long been regarded as one of the safest and most convenient ways to consolidate debt.

Personal Loan Pros:

• Generally personal loans attract a lower rate of interest.
• Your repayments are fixed for the life of the loan so you always know how much you have to pay. This comes in handy when budgeting.

Personal Loan Cons:

• If you pay your loan off sooner you may get charged an early repayment fee.
• Interest begins accruing immediately, there’s no interest free period or special low rate.

So which is better, a credit card balance transfer or a personal loan? We recently sat down and asked an expert - financial planner Dominic Alafaci from Collins House. He told us that the answer lies in the interest rate you’re charged because there’s a massive difference between a special low/no rate card, a standard credit card and a loan from a bank. He gave us the following scenarios to illustrate his point:

Option 1 - Debt consolidation via a balance transfer on a low rate credit card.
Using a special low rate credit card balance transfer, a $20,000 debt could be paid off in 36 months at 2% interest. Monthly repayments would be $571.90. At the end of the 36 months you’ll have paid $588.34 in interest plus an annual credit card fee.

Option 2 - Debt consolidation via a balance transfer on a standard rate credit card.
A standard rate credit card is subject to interest rates of around 22% per annum. So a $20,000 debt would mean monthly repayments of $750.06 over 36 months. You’ll be paying $7,002.09 in interest plus an annual card fee.

Option 3 - Debt consolidation via personal loan.
Applying for a personal loan for $20,000, and paying the debt off over 36 months would mean monthly repayments of $689.31. You’d be paying $4,815.15 in interest over the term of your loan. If you decide to pay the loan off quicker, you could be charged an early repayment fee of between $150 - $350.

According to Dominic, option 1 is the best choice provided that you;

• can get a credit card that has a low rate for the life of the card
• you don’t breach any conditions
• make all repayments on time

Finding the best solution to pay off your debt is pretty stressful and a little confusing but the good news is there are plenty of products on the market that can help take the pressure off.

Our best advice is to avoid rushing into any decisions that could cost you money in the long term. Spend some time evaluating your financial track record and formulate a plan that’s right for you. If you'd like to see all of the current Australian balance transfer offers, please check our balance transfer credit card page.