Debt Consolidation FAQ
What is a Debt Consolidation loan?
A debt consolidation loan is a loan that is used to clear other existing debts. By bringing all of your debts together into one simple monthly repayment, your debt is paid off quicker. This saves you time, money and reduces debt stress so you can get your finances back on track.
How can Debt Consolidation help me get out of debt?
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 track of multiple debts. It also allows you to deal with just one lender, instead of multiple.
How do I know if I need Debt Consolidation?
Debt consolidation is a great way for many people to get out of debt. But it’s not for everyone. A debt consolidation loan will work for you if you are struggling to pay down your debts because you have multiple outstanding unsecured debts. Unsecured debts include credit cards, store cards and personal loans.
I’m on a Centrelink payment, do I still qualify for Debt Consolidation?
Generally, yes. Centrelink can be classed as a genuine income and can be used as income to assess your serviceability for a debt consolidation.
How will Debt Consolidation affect my credit score?
Generally, applying for a debt consolidation loan will not immediately affect your credit score but should have a positive effect in the long run if you maintain a good repayment history. It will also make it easier for you to avoid payment defaults, which do harm your credit score.
Keep in mind that applying for multiple loans and being rejected will negatively impact your credit score. So you should only apply for credit if you are confident the lender will approve your application for finance.
What are the alternatives to Debt Consolidation?
Credit card balance transfer
Most credit card companies will allow you to transfer your credit card debts onto a new card with 0% interest for a certain period. This can help you get on top of your debt.
Debt Management Plan
Exclusive to Debt Rescue, our Debt Management Plan (DMP) is designed to help you get out of debt fast. It combines all of your debts into one, affordable repayment based on your budget. Our DMP is a great alternative to bankruptcy as it avoids all of the consequences and restrictions that come with it.
If your finances are out of control and you can’t keep up anymore, bankruptcy provides you with a fresh start. Bankruptcy is serious and does come with restrictions and regulations on your lifestyle, so it’s best to consult a professional debt specialist about your options before you make the final decision.
Searching for a Debt Consolidation Loan
What should I do before I apply?
We recommend you obtain your credit score and a free copy of your credit report to judge your likelihood of being approved for the loan. Here's how to check your credit score for free.
What types of Debt Consolidation loans are available?
There are two types of debt consolidation loans available:
- Taking out an unsecured personal loan.
- Refinancing your home loan and combining your unsecured debts into your mortgage.
Can I get a Debt Consolidation loan with bad credit?
Step 1: Know your debt
Applying for a Debt Consolidation Loan with bad credit can be tricky, however, there are specialty lenders who can help. Eligibility is at the discretion of the bank or lender. Positive Solutions Finance offers a range of lending options to people with poor credit. They could help you take a step towards financial freedom.
Is Debt Consolidation guaranteed to work?
No. Consolidating your debt is no guarantee that you’ll get out of debt. You are what gets you out of debt, debt consolidation just makes it easier.
I have equity in my home. Should I refinance my mortgage to consolidate my debts?
If you have equity in your home and are looking to consolidate your debts, refinancing your mortgage might be the best option for you as many lenders allow you to consolidate your debts into your home loan through refinancing.
Generally, you will be able to receive a lower interest rate on refinancing your home loan than what you’d receive on an unsecured personal loan.
As with any home loan, failure to repay the loan may result in your home being repossessed. You should also be aware that there may be fees involved to refinance your mortgage which could wind up costing you more in the long run than applying for an unsecured personal loan.
What is the difference between a Debt Consolidation loan and a Debt Agreement?
A debt consolidation loan and Debt Agreement both allow you to combine your debts into a single repayment. However, there are crucial differences between them.
A Debt Agreement is a legally binding agreement between you and your creditors to repay your debts. It is only possible to enter into a Debt Agreement if you are insolvent and cannot afford to pay your debts. Your creditors receive dividend payments based on your Debt Agreement contributions. Generally, our clients only pay on average 35c in the dollar. Once you have completed the Debt Agreement, you are debt free.
On the other hand, a debt consolidation loan allows you to pay out your existing debts and instead repay a single loan with a single monthly repayment.
The Debt Consolidation Process
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.
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 consolidate multiple credit cards?
Yes. Having multiple credit cards with different interest and fees may make it difficult for you to manage your repayments. By rolling all of your credit cards into one new debt consolidation loan, you will have just one interest rate and set of fees.
How do I consolidate my debts?
Step 1: Know your debt
Gather information on all of your outstanding unsecured debts including the principal balance and the interest rate.
Step 2: Understand your financial goal/s
Why do you need to consolidate your debts? Do you want to reduce the total payment term or keep the same term and pay less per month? Do you want to reduce the interest rate and fees? Revisit your decision and think about what would be most helpful to you and your finances.
Step 3: Get in touch with Debt Rescue
Once we take the time to assess your financial situation, we can find the best debt consolidation loan for your individual needs. We’ll help you through all of the necessary paperwork and put your new debt consolidation loan in place as quickly as possible.
Step 4: Be Debt Free
Once you have your new debt consolidation loan, you’ll only have one, management repayment – so you can focus on what’s important, rather than being dragged down by debt.
What are the consequences of a Debt Consolidation loan?
- You may increase your debt if you fail to make repayments,
- There may be fees or charges incurred for breaking your existing loans which you will need to pay, and
- You need to make sure to pay the new debt consolidation loan repayments when they fall due, otherwise you could risk losing your home.
What are the benefits of a Debt Consolidation loan?
- One easy to manage repayment,
- One set of fees and charges,
- One potentially lower interest rate,
- Avoid Bankruptcy and Debt Agreements,
- Rebuild your credit score, and
- You are given an end date to your new loan term, meaning you will know exactly when you are going to be debt free.
Can debt consolidation save me money?
Yes. Consolidating your debts into one payment may make for a fairly large sum, but it also eliminates multiple repayments and interest rates. You’ll be making much quicker progress towards paying off your debt and you’ll hang on to more of your income than you were before you consolidated your debt.