Everything You Need to Know About Debt Consolidation

Table of Contents:

What is debt consolidation?

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.

Why do people consolidate their debt?

There are a number of reasons why people consolidate their debt, including:


What types of debt can be consolidated?

There are a variety of different types of debt that can be consolidated, including:                                                                              

Gain back control of your credit card. Moving your credit card balance to a lower interest rate personal loan can save you money, and offer a fixed payment schedule that makes it even easier to budget.
Exit fees. You may be charged an early exit fee from your current loans depending on your loan provider and loan terms. SocietyOne does not charge any exit fees or early repayment fees meaning you can pay off your loan early without any penalty. 
Fold multiple debts into one loan. Save on fees with one consolidated loan and have one regular repayment date. 
Taxes may apply. Government duties and taxes may apply if you are using your home loan to consolidate your debts.
Keep on top of payments. Having a single repayment date makes it less likely that you’ll miss a repayment. Overdue payments typically lead to a default, resulting in your credit score decreasing along with additional fees. 
Budget more easily. A single payment makes it easier to budget and making life simpler. You’ll spend less time doing maths and more time putting careful consideration into your monthly budgets.
Stop nuisance calls from creditors. Are you worried every time the phone rings? Consolidating your debts will stop debt collection agencies harassing you.
Avoid bankruptcy or a bad credit rating. You may be able to avoid bankruptcy and avoid defaulting on your current debt by consolidating your debts into one personal loan, stopping your debt from spiralling further out of control.

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What to consider before consolidating

What methods can be used to consolidate debt?

Steps to take to consolidate your debt

Tips for getting the most out of consolidating

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." Shared Mark Jones, SocietyOne CEO.

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Tips for getting the most out of consolidating your debt

Can I apply for debt consolidation if I am on Centrelink?

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.

Should I refinance my home and consolidate my debt that way?

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.

Should I stay with my current bank as they offer debt consolidation loans?

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.

What is the difference between debt consolidation and making a debt agreement?

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. 

Can I consolidate debts from more than one credit card?

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.