Managing debts can sometimes feel like spinning plates. The moment you focus on just one, you lose control of the others.
One way to regain control is to take out a debt consolidation loan. This can help make it easier for you to stay on top of your repayments and wipe your debts sooner. You could even pay less than what you do now.
In this article, we discuss what a debt consolidation loan is and how it can help simplify your finances.
Key takeaways
- A debt consolidation loan combines multiple loans into one, simplifying the repayment process.
- With the right plan, a debt consolidation loan could reduce the amount of interest and fees you pay.
- Ensure fully understand the terms of your new plan, and that you can repay the new debt amount.
What is a Debt Consolidation Loan?
A debt consolidation loan combines multiple debts into one. You take out a new loan with a lender and use the loan money to pay off your existing debts. Then, you gradually pay off the new loan on a weekly, fortnightly, or monthly basis.
You can use a debt consolidation loan to pay off all kinds of debts, including personal loans, car loans, and credit card debts. You can also use it to pay off both secured and unsecured loans.
Most Australian banks, such as CommBank and NAB, offer debt consolidation loans. But they may reject your application if you have a low credit rating or recent marks against your credit report.
You may be ineligible for a debt consolidation loan if you are already bankrupt or subject to a Part 9 debt agreement. If your financial circumstances are unique, speak to a specialist lender for debt consolidation advice.
What Are the Benefits of a Debt Consolidation Loan?
A debt consolidation loan can help simplify your finances in the following ways:
Easier Debt Management
Instead of having to manage multiple debts – each with different amounts, due dates, and recipients – you only have to repay one company per month. This can make it easier for you to plan your budget and consistently make your repayments.
Cost Savings
There are many ways a debt consolidation loan can help you save. Your new could have lower interest rates and fees than your existing one
Credit Rating Boost
Are you struggling to meet your existing repayments? If so, then frequent missed or late repayments could affect your credit rating.
Consolidating your debts into one can help address this issue. This is because you only have to track one easy repayment. Each month, you’ll know exactly when the money is due, giving you ample time to make a deposit into your nominated account for the direct debit.
Timely and consistent repayments may help improve your credit rating.
How to Apply for a Debt Consolidation Loan
Follow these recommended steps to apply for a debt consolidation loan:
- Review Your Existing Debts
Figure out how much you’re paying each month on your existing debts. You can do this with a free Budget Calculator. Be sure to account for interest and fees, as well. This will help give you an idea of how much you could potentially save.
- Compare Debt Consolidation Loans
Compare loans to see who offers the most competitive interest rates and fees. But watch out for associated costs. Things like account setup fees, exit fees, and early repayment fees can nullify the benefits of reduced rates and fees. A Loan Comparison calculator may help you out here too.
- Speak to a Debt Management Specialist
Are you over 15k in debt? Then contact Debt Fix for an obligation-free assessment. A debt management specialist can evaluate your circumstances and financial history, helping you choose the right debt consolidation plan for you. We can even stop the creditors calling, so you can get on with life.
- Notify Your Lender of Changes
Keep your lender in the loop when circumstances change. Let them know if you change address, change your bank details, or experience an event that may affect your ability to repay. Your lender may be able to better suits your new circumstances.
Things to Consider Before You Apply
A debt consolidation loan is a great way to simplify your finances. But there are a few things you should be aware of. This can help increase the odds of you choosing the right debt management plan for you.
Check Your Credit Report
Request a credit report from any of the three main credit reporting bodies in Australia. These include Equifax, Experian, and illion. Requesting a credit report is free and won’t affect your credit rating.
Review your credit report, ensuring the details are accurate and up to date. If you discover any discrepancies, notify the relevant credit reporting body. They should be able to correct any proven inconsistencies.
Correcting mistakes in your credit report may even raise your credit rating.
Make Sure You Are Paying Less
The main purpose of a debt consolidation loan is simple: to pay less than what you do now. Be sure to compare the new interest rates and fees with your existing ones. Obviously, your new rates and fees should be lower.
Also, consider the length of the debt consolidation loan. If the new plan is longer than your current one, then you could pay less in monthly instalments. But, in the long run, the new plan could also be more expensive, as you’ll pay more interest rates and fees.
Consider a Secured or Unsecured Loan
One way to pay less interest is to apply for a secured debt consolidation loan.
With a secured debt, you nominate an asset (e.g. car, house) as security. This means that if you fail to meet your repayments, then your lender can repossess and sell that asset to get their money back.
If you currently have unsecured debts (debts with no assets as security), then a secured debt consolidation loan could benefit you. Just be aware of the risks. Of course, a debt consolidation specialist can discuss this option with you.
Talk to Debt Fix
Stop losing countless nights of sleep worrying about debt. Reach out to Debt Fixfor a free, confidential chat with one of our debt management experts.
Get started. It only takes 30 seconds. And applying won’t affect your crediting rating.
Frequently Asked Questions (FAQs)
How Much Can You Borrow Through a Debt Consolidation Loan?
That depends on what your lender thinks you can afford to repay. If you’re already struggling to repay multiple debts, then your borrowing amount may be lower than if you were in a better spot.
Getting your existing debts under control can help increase your borrowing power.
Is It Hard to Apply for a Debt Consolidation Loan?
Not really. These days, you can apply online or over the phone and receive an answer within a day. Waiting periods may vary based on the complexity of your finances.
You will need to have some documentation ready, such as payslips, bank statements, utility bills, and other proof of your income and expenses.
What Are the Eligibility Requirements for a Debt Consolidation Loan?
Generally speaking, you must:
- Be At least 18 years old
- Be an Australian or New Zealand citizen, Australian Permanent resident, or carry an eligible visa
- Have a consistent income and residential address
- Have a good credit rating and report
- Have enough income to repay what you borrow
