What is debt consolidation?

Debt consolidation is when you take out one loan to pay off multiple debts. This can help you to simplify the juggling act of paying off multiple debts, as it allows you to make one monthly payment instead of many to different creditors. On top of this, debt consolidation can also help reduce the overall interest and fees you are paying on multiple debts.

In Australia, debt consolidation typically involves taking out a loan to pay off multiple credit card debts and other unsecured loans. Your new loan will likely have a lower interest rate than the interest rates on your debts being consolidated.

When consolidating your debts, it’s important to look for a loan with a low-interest rate, as this will help reduce the overall cost of your loan. It’s also important to consider any loan fees, such as establishment fees and ongoing fees (as these might cost you).

Why consolidate your debt?

It’s important to understand exactly what debt consolidation is and how it works. Keep in mind that it doesn’t change or relieve the original debt – it simply transfers separate individual debts to a single credit facility, potentially making it more manageable. Keep in mind that another loan may not always be the right answer.

It is also a good idea to look for everyday ways to help you pay down your debt faster.

Can you save money by consolidating your debt?

To make debt consolidation worthwhile, you’ll want to ensure you get better terms in one way or another. This may mean a lower rate of interest, a reduced monthly payment or an extended period to make repayments.

Imagine if you had half a dozen or more credit cards, each with a high interest rate and a significant balance. In this case, each of those credit card companies would require (at the very least) a minimum payment each month.

Now if you were to transfer all of those balances into one consolidated loan, with a more reasonable interest rate, but continue to apply the same total monthly repayment, then you might be able to repay the total outstanding debt more quickly, thus saving you on the total interest you’ll need to repay.

What are the benefits of debt consolidation?

One of the main differences between a credit card and a personal loan has to do with the interest rate.

With personal loans, the interest rate is typically lower (depending on the lender), so it may end up costing you less in the long run since you’re not accruing more debt as you go.

Additionally, you may benefit from:

• Feeling better because you’ve got less stress
• A single regular payment so you know what to expect
• A potential improvement to your credit score
• A set timeframe to become debt-free
• Cutting up your credit card, so you’re not tempted to re-spend what you’ve paid off

Think this may be a product that can help you get on top of your debt? Get in touch with the team or book in a time for us to call you, and we can help explore your different options