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What is a debt consolidation loan

What is Debt Consolidation?

The stress of paying multiple debts can be overwhelming. Debt Consolidation is a way of simplifying your finances if you are struggling to manage your debt repayments or suffering financial hardship. A Debt Consolidation Loan can be a perfect way to eliminate extra fees and interest on your existing debts. So what is Debt Consolidation?

Debt Consolidation brings all of your existing debts together under one loan, resulting in a clearer picture of your finances. Usually, you would do this by taking out a new loan to repay your existing debts and then paying this back over a set term.

How does Debt Consolidation work in Australia?

Australians are able to consolidate debt through a wide range of Debt Consolidation Loans. Financial institutions like banks and other lenders offer Debt Consolidation Loans. Having several credit cards and personal loans can be overwhelming, especially when it comes to managing the repayments. Consolidating your debts to have one manageable repayment removes the stress and confusion associated with keeping on track with multiple debts.

An example is if you had 2 different credit card debts of $2,500 and $8,000, in addition to a personal loan of $5,000. Your total debt is $15,500. Now consider the interest you are paying on each individual debt. Your credit cards alone could be up to 20%. The repayments you are making might only just be covering the interest This is when Debt Consolidation could be the right solution for you.

The best way to consolidate your debt is by taking out a Debt Consolidation Loan. A Debt Consolidation Loan will bring all of these debts into one loan with one repayment, removing multiple fees and charges. More importantly, you will have just one interest rate, and it could be significantly lower.

With a potentially lower interest rate and one manageable repayment, you will be able to start chipping away at the debt. Imagine the relief!

Why is Debt Consolidation a good idea?

There are many key advantages of consolidating your debts including:

  • One easy to manage repayment
  • One set of fees and charges
  • One potentially lower interest rate
  • An end date to your new loan term, meaning you will know when you are going to be debt free.

Knowing when your new Debt Consolidation Loan will finish means you can start planning for the future. No more getting lost in a sea of debt! You can budget, start a savings account and know that you are now in control of your debt.

Avoid Bankruptcy and Debt Agreements

Debt Consolidation is a way of avoiding other debt relief solutions such as Bankruptcy or a Debt Agreement. Bankruptcy is ideal if you have no way of repaying your debts, however, there are several restrictions and consequences. Part 9 Debt Agreements allow you to repay your debt with one repayment, but it is not a Debt Consolidation Loan. It is an agreement between you and your creditors to repay your debt over an agreed time and with a reduced repayment. However, there are certain thresholds and consequences associated with a Part 9 Debt Agreement.

Rebuild your credit score

Maintaining repayments on an affordable loan will have a positive effect on your credit file. By developing good habits and avoiding defaults through late repayments, your credit score should improve.

Debt Consolidation does not affect your credit file

Consolidating your debts through a loan won’t impact your credit file. If anything, it will make your repayments more manageable. As you continue to make your repayments on time and in full, your credit score will improve.

Bear in mind, each time you apply for a credit card, store credit or loan, the loan application will be noted on your credit file. Multiple applications for finance can have a negative impact on your credit file. Proceed with caution when you are looking for a Debt Consolidation Loan. We recommend you go through a broker as this allows you to shop around for the right loan without submitting multiple enquiries.

Which Debts can I Consolidate?

You can consolidate your unsecured debts. Unsecured debts include personal loans, credit cards, or any bills for services you no longer receive. For example, you can include an unpaid bill from an old phone service in a Debt Consolidation Loan.

You can also consolidate secured debts, such as your home loan, as long as there is enough equity in the underlying asset. This type of debt consolidation is commonly referred to as mortgage refinancing.

Can I get a Debt Consolidation Loan if I have bad credit?

Applying for a Debt Consolidation Loan with bad credit can be tricky, however, there are specialty lenders who can help. Positive Solutions Finance offers a range of lending options to people with poor credit. They could help you take a step towards financial freedom!

How we can help you with Debt Consolidation

If you are considering Debt Consolidation, we can help! You can visit our solutions page for more information. The team at Debt Rescue have years of experience and valuable knowledge. We can work out the best solution for your circumstances. If you are unsure of which is the right debt relief solution, call one of our friendly Case Managers on 1800 00 3328.

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