GuidesDebt Consolidation Guide
SocietyOne's Debt Consolidation Guide
Everything you need to know about debt consolidation.
7 min read
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:
Simplify your monthly repayment schedule
Owing money to a number of different lenders can be overwhelming. If you are trying to pay off multiple debts at the same time, these will have varying interest rates and repayment dates, which can be confusing and hard to stay on top of. Consolidating the debts into one loan will mean there is just one repayment date and one interest charge, making it easier for you to keep track of your commitments.
Lower your interest rate
Taking out a new personal loan to cover your current debts will mean you obtain a lower interest rate on one loan, rather than varying interest rates from numerous sources.
Know when your debt will get paid off
Having a number of loans and credit cards with varying end dates can make you feel like you’ll never get out of debt. A new fixed term loan will mean you will know when the debt will be paid, making it easier for you to plan out your finances.
What types of debt can be consolidated?
There are a variety of different types of debt that can be consolidated, including:
- Credit card debts
- Medical bills
- Car loans
- Personal loans
- Unsecured personal loans
- Utility bills
Advantages & disadvantages
Advantages
Disadvantages
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.
Looking for a debt consolidation loan?
What to consider before consolidating
Is this the best option for me right now?
Taking out a debt consolidation loan is a decision that shouldn’t be taken lightly, and should offer you more benefits than the loans you currently have.
Will this loan save me money?
Make sure the debt consolidation loan you are taking out offers a lower interest rate, and check all fees and charges associated with it.
What are the fees and charges on this loan?
Don’t get caught out with high fees and charges from lenders. Loans available to those with bad credit often carry higher rates and fees, so be cautious.
Read the small print!
Ensure that you know exactly what you are getting into. Ask questions, read all of the necessary paperwork and understand what it means for you if you are declaring bankruptcy.
What methods can be used to consolidate debt?
Credit card balance transfers
Transferring your credit card balance from one credit card to a new credit card offers an easy way to consolidate debt and lower repayments, although there are some risks to be aware of.
Home refinancing
Refinancing your home can save you money on your mortgage if done right.
Debt settlement
Hire a debt settlement company that can help you negotiate your debt and create manageable monthly payments.
Home equity loans
Home equity loans can give you the money you need to pay off your current debts, and secure you a reasonable interest rate on the loan depending on the amount of equity in your home.
Debt consolidation personal loans
This is a popular way to pay off debts with one scheduled monthly payment. SocietyOne offers tailored loans specifically for the purpose of consolidating debt.
Steps to take to consolidate your debt
Create an inventory of your debts
Write a list of all of your outgoings so you can visualise your debt, how much you owe and to whom.
Review your loan options
Do some research on what loans are available and compare debt consolidation loans.
Calculate repayments and interest
Work out exactly how much you will owe each month and have a sound understanding of what the contract means for you.
Apply for your chosen loan
Whether it be a wedding, car, home improvements or even a dream holiday, having a good credit score provides you with far more flexibility when it comes to making large purchases, especially if you lack the initial funds to pay for something in full.
Understand your payment schedule
Ensure you have a good grip on when your payments are due. Missing payments will incur charges and lead to additional debt.
"These smaller, more attainable goals will give you confidence in your money management and help you feel accomplished every time you hit them."
SocietyOne CEO Mark Jones
Tips for getting the most out of consolidating
Between now and your debt settlement date, create some easy savings goals with quarterly checkpoints.
Track your spending
Take a snapshot of your outgoings. Seeing your income stacked against your expenses will help you to spot the holes in your pockets. Cut back where you can and save.
Get creative with your social calendar
Think of some enjoyable alternatives to an expensive night out, without compromising on the fun, such as game nights, taking turns to host a dinner at home or some DIY activities.
Share your goals
Tell your friends and family about your plans and goals. Not only will this help them understand what you’re facing and respond supportively, but knowing others are aware of your intentions can help cement your own belief in your actions.
Track your progress
Stay motivated by tracking your progress, and give yourself a little reward here and there.
Frequently Asked Questions
What is the process of applying for a personal loan?
Applying for a SocietyOne loan is simple.
- Get your rate: In as little as 2 minutes we'll give you an interest rate and comparison rate based on your credit profile.
- Apply online: Most people finish their application within 5 minutes (and it's easier to do if you're enjoying your morning coffee).
- Get paid: Once approved, we'll have the loan funds in your account in as little as 1 business day.
Get your rate now and get started.
How much can I borrow, and for how long?
The amount you can borrow depends on the loan options you choose and how much you can afford to repay.
With an unsecured personal loan, you can borrow from $5,000 to $50,000. However, if you choose our secured option, the maximum loan size is $70,000.
With either option, you should borrow an amount that suits your situation, so that you will be comfortable paying off each instalment.
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What are the interest rates?
Fixed interest rate
Our personal loans have a fixed interest rate, meaning your interest rate doesn't change during the life of your loan and your regular repayments are always the same.
Fixed rate personal loans can help make it easier for you to budget. With no early repayment fees, our fixed rate loans give you more freedom and allow you to pay off your debt sooner.
Our fixed rates for unsecured personal loans range from 9.20% p.a*
Our fixed rates for secured personal loans range from 8.20% p.a*
Comparison rate
If you're looking to compare personal loans, the comparison rate is the most transparent way to compare the true costs. A comparison rate takes into account the interest rate as well as the known fees and charges that are payable (such as establishment fees), making it easier to understand the complete cost of the personal loan with a more transparent comparison of the products.
Our comparison rates for unsecured personal loans range from 9.20% p.a*
Our comparison rates for secured personal loans range from 8.27% p.a*
Are there any fees?
We charge a one-off establishment fee that is included in your total loan amount. There are also no monthly fees or early repayment fees giving you the security of a fixed rate loan, with the flexibility to pay it off early. Visit our Rates & Fees page for further details.
Establishment fee
No up-front payments, just a one-off fee included in your total loan amount and paid over the life of the loan. Establishment fees range from: 0% with a maximum establishment fee of $645.
Overdue Account Fee
Payable when the repayment is 7 days overdue, and again every 14 days thereafter, until arrears are cleared or a cap of $210 is reached. Overdue account fee: $35 per Overdue Account Fee
Dishonour Fee
Payable each time a direct debit is dishonoured or your commitment to make a loan repayment is not met. Dishonour fee: $15 per dishonour
Early repayment fee
Some lenders charge you for paying your loan out early. We don't! Early repayment fee: $0