Debt Consolidation Facts: What you need to know
Whether you are struggling financially or you are simply looking for a way to save money on your bills, debt consolidation is a wonderful way to organise your finances. Consolidating your debts can save you hundreds of dollars in interest, simplify your budget and pay off your debts fast. Consolidating your debts into one account can be beneficial if you are well informed of your options. This Debt Consolidation Facts sheet will provide you with all the information you need to reduce your debt.
What is debt consolidation?
As we go through life, we tend to accumulate debts. Common debts include credit card debt, personal loans, car loans and mortgages. Each of these loans has an individual interest rate, a separate set of fees and charges and a different policy and punishment when it comes to late repayments. Because of this you could find you are making six repayments each month and losing a lot of money through the interest you are paying on each loan. If you start to fall behind on these repayments, you will cop individual late fees which can see you fall into debt fast.
Debt Consolidation Fact: Consolidating your debts is when you take out a single loan and borrow enough to repay all your debts in full. Then you are left with a single repayment with a single interest rate.
Why consolidate debts?
Debt consolidation is designed to reduce your repayments which will in turn minimise your interest, shorten the life of the loan and simplify your finances with a single debt repayment. This can have several advantages in your life. The money you save through reduced interest can help pay off other secured debts or improve your cash flow in a difficult financial time. Having a single repayment is much easier to keep up with so you are less likely to miss a repayment or fall into debt through late repayments.
Debt Consolidation Fact: The new loan could shorten the life of your repayments, getting you out of debt faster. But it could also lengthen the life of your loan, reducing your weekly repayments even more and giving you some breathing room to repay your debts.
Where to start
The first thing you need to do is go through your finances with a fine toothed comb. Write down exactly what you are paying to each creditor, when the repayments are due and how much interest you owe. This will help you decide how much your debt consolidation loan needs to be. Next you need to decide whether you want to stay with your financial institution or look around for a better deal. Swapping lenders may incur some extra fees in the way of breakages and cancellations but shopping around could save you thousands in interest. If you find a great deal through a credible lender you can apply for the loan. Take your time with the application process.
Debt Consolidation Fact: Thousands of applications are rejected each year simply because a form was filled in incorrectly or the applicant failed to include something they had completely forgotten about.
What to look out for
Consolidating your debts can save you thousands but if your aren’t careful it could cost you thousands more. Before you consolidate your debts with a loan, you need to be aware of exit fees and charges. Every lender is different so you need to establish which lender will charge you for what if you decide to break your loan. Potential fees and charges you could incur include:
- discharge fees
- deferred establishment fees
- break costs
- loan fees
- legal fees
If you have taken a consolidation loan through a different financial institution, you will also be looking at another set of fees through them including:
- application fees
- establishment fees
- valuation fees
- settlement fees
- registration fees
- stamp duty
- loan insurance
To ensure consolidating your debts is worth your while, weight up how much you could potentially save with how much it is going to cost you in fees and charges.
Debt Consolidation Fact: The fees involved will be different depending on the loans you are trying to consolidate. For example if you only want to consolidate your credit card repayments with your personal loan, all the fees and charges associated with a mortgage such as mortgage insurance won’t apply.
Taking the First Step
Consolidating debts is a huge financial step to take and thankfully you don’t have to take it alone. Debt Rescue is a personal debt management company whose only interest is helping Australians get out of debt. Our professional case managers will ask you a series of questions to get the best idea of your financial situation. From there they can help you work through the figures to see whether consolidating your debts is the best solution for you. If it is, they can refer you to Positive Solutions Finance to find an affiliated lender who specialises in debt consolidation loans.
Debt Consolidation Fact: Positive Solutions Finance is a company with several affiliate lending partners specialising in non-conforming loans.
When all else Fails
Through your research, you might find debt consolidation wouldn’t be the best path to take to recover from financial distress. Don’t panic! There are other options available to you to get you back on track. The specialist case managers at Debt Rescue can also help you with Debtstroyer, an informal debt agreement which won’t affect your credit rating, a formal Debt Agreement or could simply help you devise a weekly household budget. The worst thing you can do is nothing when it comes to your debts. For more debt consolidation facts, Talk to An Aussie Who Cares and call Debt Rescue on 1800 00 3328.