Managing multiple debts at once can be emotionally stressful and financially debilitating. However, sometimes you don’t know how bad things are until you step back and assess your situation.
Identifying the signs of a bad situation can help you discover better ways to manage your outstanding debts. You may find that debt consolidation could be the first step to financial freedom.
In this article, you’ll find out what debt consolidation is, why it’s worth considering, and the top 5 signs that debt consolidation could be right for you.
Key Takeaways
- Identifying the signs of debt struggle can help you seek advice and support.
- Debt consolidation could be right for you if you currently pay high interest and want to reduce your monthly repayments.
- Companies like Debt Fix can assess your situation and offer a range of debt relief plans that work for you.
What is Debt Consolidation?
Debt consolidation is when you combine multiple debts into one. This usually means taking out a new personal loan, using the funds from that loan to pay off your outstanding debts, and gradually repaying the new loan in weekly, fortnightly, or monthly instalments. This simplifies things by giving you only one debt to repay and it helps you save money as you pay less interest than before.
Another way to consolidate debt is to perform a credit card balance transfer. This is where you transfer your outstanding credit card debt to a new card issued by another credit card company. The main reason to do this is to take advantage of the low or zero-interest introductory period that come with these balance transfer credit cards.
Why is Debt Consolidation Worth Considering?
Debt consolidation is worth considering for many reasons. It can help simplify your debt repayments, save you money, give you a clearer timeline of when you’ll be debt-free.
Simplify Your Debt Repayments
Debt consolidation can help make your life easier by consolidating multiple debts into one. Instead of repaying multiple debts – each with separate amounts, due dates, fees, and interest rates – you have only one debt to manage.
This means you owe the same amount of money at the same time on a consistent weekly, fortnightly, or monthly schedule. Thus, it’ll be easier to plan and stick to your budget, and to ensure you have enough money in the right account before each due date.
Save Money
One of the main reasons to consider debt consolidation is to reduce your debt amount, including the associated fees and interest. This is usually achieved by being approved for a new personal loan, one that has lower fees and interest than your current outstanding debts.
Another way to save money is to have a company like Debt Fix negotiate with creditors on your behalf. Their strong communication and negotiation skills they may convince creditors to lower your debt amount, fees, and interest. Most creditors will consider this option if doing so increases their odds of being repaid.
Get a Clearer Timeline of Being Debt-Free
With only one debt to manage, you’ll have a clearer idea of when you’ll be debt-free. Most debt consolidation plans last anywhere from 12 to 48 months or longer, and you can usually repay them earlier without incurring early repayment fees. Just make sure this is the case with your loan before you apply.
Top 5 Signs It’s Time to Consider Debt Consolidation
If you’re struggling to repay multiple debts and unsure where to turn, here are 5 signs that a debt consolidation loan could be right for you.
1. You’re Paying Too Much Interest
Are you paying more interest on your outstanding debts than you can afford? Switching to a debt consolidation loan with a lower interest rate than what you pay now could help you save money.
Most personal loans have lower interest rate than credit cards. This makes them a viable option for those struggling to repay debt due to high interest.
2. You Keep Missing or Making Late Repayments
Frequent late or missing repayments can lower your credit score and result in a breach of your debt agreement terms.
Consolidating your debt can help simplify the debt repayment process, enabling you to manage just one loan instead of multiple loans with separate amounts, due dates, fees, and interest rates.
3. You’re Experiencing Financial Stress
According to the Australian Institute of Health and Welfare (AIHW), an estimated more than half of Australians (59 per cent) experienced at least one personal stressor in the last 12 months, with financial strain being one of many causes.
Financial stress can manifest in the form of frequent late or missing payments. It can also negatively impact your mental health and well-being, resulting in symptoms such as anxiety, social isolation, and difficulty sleeping.
A free chat with a company like Debt Fix can help you make sense of your situation. Our friendly, knowledgeable team can assess your situation and offer a range of debt relief options to help you climb out of the debt spiral for good.
4. You Want to Reduce Your Monthly Repayments
Are your monthly repayments higher than what you can currently afford? When you consolidate your debts, you begin a new loan term that overrides your previous loan terms.
This typically means extending the duration of your loan, resulting in lower monthly repayments. The only downside to this is that it could raise the interest you pay, as you’ll be making more debt repayments over a longer period.
5. You Have a Good Credit Score
While it is possible to get approved for a bad credit debt personal loan, the situation is usually not ideal. You’ll likely only be offered such a deal if you pay a higher interest rate than usual. These measures are in place to protect lenders if you default on your loan repayments.
However, if you already have a good credit score, then a debt consolidation could be worthwhile. Most Australian credit reporting agencies consider a credit score of 625 – 699 or higher as ‘Good’. So, if your credit score falls within this range or above, you’ll likely be approved for a debt consolidation loan on favourable terms.
Alternatively, look for ways to improve and maintain your credit score for more favourable borrowing terms.
Contact Debt Fix Today
Knowing when to apply for a debt consolidation loan can help you avoid sinking further into debt. At Debt Fix, we offer a wide range of debt relief solutions to help you save money, stop creditors from calling, and regain control of your finances.
Get started today by completing our 100% confidential form. It takes only 30 seconds to apply, and your application won’t affect your credit rating.
Frequently Asked Questions (FAQs)
Below are some frequently asked questions about when to consider debt consolidation:
When is Debt Consolidation Right for You?
There are many factors to consider before you apply for debt consolidation. Debt consolidation could be for you if you’re struggling to repay multiple debts, have a good credit score, and are overpaying on interest.
Can You Pay Off Your Debt Consolidation Loan Early?
Most lenders let you repay your debt consolidation loan early. However, depending on your loan terms, you may incur early repayment fees. Some lenders charge early repayment fees if you repay your loan within 12 months, while other lenders charge no early repayment fees at all.
Do Debt Consolidation Loans Hurt Your Credit Score?
A debt consolidation loan will hurt your credit score if you apply for too many loans at once and get rejected, and if you default on your debt repayments.
