Juggling multiple debts at once can be difficult, especially when each debt has different amounts, due dates, and interest rates. Consolidating multiple into one can help simplify your debt repayments and possibly even save you money.
In this article, you’ll learn what debt consolidation is, how it works, and its benefits and challenges. You’ll also learn what debt relief is available to you when debt consolidation is out of reach.
What is Debt Consolidation?
Debt consolidation is when you combine multiple debts into one. Typically this means taking out a personal loan, then using the funds from that loan to pay off your outstanding debts. You then focus on repaying the new personal loan, where you make fixed repayments every week, fortnight, or month.
Another form of debt consolidation is a credit card balance transfer, also known as a way to refinance your credit card. This is where you transfer your outstanding credit card debts to a new balance transfer card.
Most card issuers offer balance transfer cards with low or zero-interest introductory periods. If you pay off your outstanding credit card debt before the introductory period is over, then you could save a fortune on interest.
How Does Debt Consolidation Work?
Debt consolidation works by having you take out a new personal loan through a financial lender. You then use those loan funds, which is equal to that of your outstanding debts, to pay off your creditors. Once your outstanding debts are paid off, you repay the new personal loan in weekly, fortnightly, or monthly instalments.
Debt consolidation loans come in two types: secured and unsecured. A secured loan is where you nominate an asset, such as a car or property, to act as security. If you fail to satisfy the terms of your debt consolidation loan, the lender may seize the asset to pay off the outstanding loan. An unsecured loan, on the other hand, does not have an asset tied to the personal loan, which typically results in a higher interest rate.
What Are the Advantages of Debt Consolidation Loans?
The advantages of a debt consolidation loan are that it can help you:
Save Money
Refinancing your existing debts into a new personal loan could help reduce your interest payments. To achieve this, you apply for a new personal loan with a lower interest rate than your current outstanding debts.
Even if you’re ineligible for a debt consolidation loan, there are other forms of debt relief to consider. At Debt Fix, we can help combine your outstanding debts into one repayment plan. We can also help you avoid high interest rates, fees, and penalties.
Manage Your Debts More Easily
Consolidating multiple debts into one can help simplify your repayments. With only one repayment to manage, you pay the same debt amount each time and at a predictable frequency. This makes it easier to plan your budget and ensure you have enough money in your account on each due date.
Regain Financial Control
When juggling multiple debts at once, it can be hard to know when you’ll be debt-free – especially if each loan has different start and end dates.
By consolidating multiple debts into one, you have only one end date in sight. This way, you will know exactly when you’ll be debt-free, which can help motivate you to commit to your repayment plan.
What Are the Potential Drawbacks of a Debt Consolidation Loan?
A debt consolidation plan may not be right for you if you have:
A Poor Credit Score
While it is possible to get personal loans with bad credit, the situation is not ideal.
In Australia, most credit agencies consider a credit score of 0 to 459 to be ‘below average.’ If your credit score falls within this range, you have a higher-than-average likelihood of having an adverse financial event in the next 12 months.
With a low credit score, you’re more likely to be rejected for a personal loan, or you may only be offered those with unfavourable terms, including high fees and interest rates. In this case, it’s worth approaching a company like Debt Fix. We can assess your situation and offer viable alternative debt relief plans.
Poor Spending Habits
People fall into debt for many reasons. However, sticking to poor spending habits is a common catalyst. You may have poor spending habits if you:
- Don’t create and follow a budget
- Spend before you save
- Overpay for essentials like groceries, transport, and memberships
- Frequently use credit
- Frequently make impulse purchases
If you’re guilty of doing one or more of the above, then a debt consolidation loan may not solve the root cause of your debt problems. Being money smart can help you manage your debt and regain control of your finances.
A Low Debt Value
If you have outstanding debt that you can pay off in a year or less, a debt consolidation loan may not be worth it.
When applying for a new personal loan, you must go through a credit check. You must also pay any fees associated with closing old accounts and opening a new account. With a low-value debt, the cost of incurring those fees may overshadow the benefits of the debt consolidation loan.
Why Choose Debt Fix for Debt Relief?
If you’ve been rejected for a debt consolidation loan or offered only unfavourable terms, there are alternative debt relief options.
At Debt Fix, we offer a range of debt solutions to help you save money and regain control of your finances. By consolidating your outstanding repayments into a single, affordable repayment plan, you enjoy the following benefits:
- Debt Relief Tailored to Your Needs: We understand that there’s no “one-size-fits-all” approach to debt relief. That’s why we take the time to assess your situation and propose a debt relief plan that works for you.
- Simplified Debt Repayments: Having one repayment to settle multiple debts makes it easier to budget. You also have less paperwork to fill out, and only a single point of contact.
- Save Money: Depending on the circumstances of your debt, we may be able to reduce the amount of debt, interest, and fees you pay. Since all your debts are rolled into one, you’re less likely to face penalties for missed payments, helping you save money.
Contact Debt Fix for Debt Relief You Can Trust
Understanding the basics of debt management can help you make informed financial decisions. However, when a debt consolidation loan is out of reach, the situation can feel hopeless.
If you’re struggling with where to turn next, speak to the experts at Debt Fix. We have a range of debt solutions to help you save money, avoid stress, and regain control of your finances.
It only takes 30 seconds or less to apply online. And making an application won’t affect your credit rating. Get started today.
