Debt consolidation is the process of combining a number of different debts into one single loan that has an overall lower interest rate. It works well in a situation where you have multiple credit cards or unsecured loans, and can save you money in interest payments. By taking out a new personal loan to repay other debts, you can get a fresh term loan with a lower interest rate.
There are a number of reasons why people consolidate their debt, including:
There are a variety of different types of debt that can be consolidated, including:
While the benefits of debt consolidation are many, it is also good to keep in mind possible drawbacks in order to make an informed decision that works for you. Check out some of the main advantages and disadvantages of consolidating your debt below:
Between now and your debt settlement date, create some easy savings goals with quarterly checkpoints. These smaller, more attainable goals will give you confidence in your money management and help you feel accomplished every time you hit them.
Some lenders class Centrelink payments as genuine income and will consider you for a debt consolidation loan. If you are on Newstart or Youth Allowance you might need to speak to your creditors and work out a manageable repayment plan.
If you have a large amount of debt, it may be worth looking into home refinancing. Review your options fully before you make any big decisions.
Compare rates and fees before you choose to stick with your current bank. While there are some advantages to applying with your current bank, the existing relationship with you being a big factor, they may not have the best deal to cater to your needs.
A debt consolidation loan is a personal loan that allows you to consolidate your current debts into one. A debt agreement is something taken out by people with large debts and/or a bad credit history and is a form of bankruptcy. Ensure that you understand the terms of the loan you apply for and the effect it will have on your credit.
If you have a number of credit cards from different lenders, you may be finding it difficult to manage your repayments. Consolidating these debts into a fixed term consolidation loan could mean you pay less interest and lower your repayments.