By combining all your debt with a consolidation loan, you are taking control of your finances, increasing your cash flow and will simply end up paying less interest overall.
Debt consolidation loans can be either secured using a mortgage or unsecured for non homeowners and typically range in amounts from
Why Consolidate your Debts?
If you currently have multiple unsecured debts which lie in small loans, credit cards and store cards you could make your debt easier to manage and, in certain cases save on interest overall by rolling all of your debts into one.
The major benefit to debt consolidation is that, if done right and in optimal conditions, your debt will become easier to manage and you may prevent yourself from having to file for bankruptcy which will affect your credit and ability to access credit and other products and services for years to come.
You will also be able to free up some of your income since the total amount of money you pay towards debt will be lowered because of the longer loan term. This means you can use this extra income for living and other expenses.
Types of Loans
Secured vs Unsecured Loans
Most people that have decided to consolidate their debts will do so using a secured loan since this will afford them a lower interest rate and help them save on debt payments. The most common form of security for a debt consolidation loan is the equity you have in your home.
Unsecured consolidation loans, although not as common as secured one do exist and can be used by those who do not own their own homes or any other form of acceptable security. These loans are much more risky than secured loans and the interest rate that they carry will always reflect this.
Finding a Lender
From banks and credit unions to peer-to-peer lenders and online companies you can get a debt consolidation loan from just about anywhere. With so many providers and so many options it is not easy to compare them or make a choice without some expertise and guidance.
Are they Registered?
Any provider of credit in Australia, including brokers must be registered with the ASIC and finding out if a potential lender is indeed registered is a good way to avoid dodgy lenders and brokers.
We have listed a number of reliable providers that are registered with the ASIC and that offer debt consolidation loans below this guide. You can review each one independently and then follow the link to their site if you wish to find out more information.
Loan Comparison Sites
Another great way to find and compare providers is to use a loan comparison site which will also allow you to compare specific products side by side.
Using a site like this will allow you not only to compare rate and view loan amounts and loan terms but also to get a good idea on the application, establishment and ongoing fees a lender may charge so you can make the most informed decision possible.
Need Help with Debt?
If you are drowning in debt and are considering debt consolidation it is a good idea to first try out some alternative solutions such as seeking professional financial counseling.
This is a free service offered by many non-profit organizations and can help you devise a workable plan to effectively get out of debt without resorting to consolidation, a debt counseling program or bankruptcy. They can even help you negotiate with creditors, apply for hardship variation or government assistance and help you prevent eviction among many other legal processes.
Call your Credit Providers
If you’re having trouble keeping up with your debt obligations you must immediately contact all of your credit providers and inform them that you cannot keep up with payments.
They will almost always be willing to arrange an alternative credit repayment plan that will lower your payments and help make your debts more affordable. In many instance they may even be willing to lower the interest and fee charges.
Beware of False Advertising
While debt consolidation can, in many instances help someone make their debts more manageable and, in certain cases cheaper, it is by no means a one size fits all solution for excessive debt.
Many providers of alternative credit and debt consolidation loans advertise this option as the Holy Grail of debt solutions and make consumers wrongly assume that it is a magic formula to get out of debt.
As mentioned, debt consolidation can in many circumstances make your debt easier to manage, cheaper and more affordable but, it doesn’t always work, nor will it always help you save money.
There are also many debt consolidation service providers that will offer you credit and make unrealistic promises in an attempt to get you to refinance and consolidate even though they know you will be unable to keep up with your new loan repayment.
Summary of what you Need to Know:
- Debt consolidation is when you roll many small debs into one larger debt
- The new personal loan will always have a longer loan term as you are combining multiple debts
- Debts that can be consolidated are unsecured debts including personal loans, credit cards and store accounts
- Debt consolidation loans can be secured & unsecured
- Consolidation is not always the cheapest option and may sometimes cause your debt situation to worsen
- Since you are breaking credit agreements with multiple creditors you may be charged dishonor fees, early repayment penalties and other charges for paying off the credit agreement earlier than agreed
- Debt consolidation is not the same as debt management or debt counseling
- You may pay more in interest overall for the new loan than you would on all of your smaller debts combined
- You should always compare loans and do your research prior to settling on any loan or lender
- Alternatives to debt consolidation include getting financial counseling, contacting your creditors to arrange alternative repayment, refinancing your home, debt management and debt counseling.
- Although in certain cases it is possible to lower the interest that you pay on loans with a new consolidation loans, you typically pay the interest over a longer period and therefore will pay more overall.
Finally, consolidating you debts successfully means that you have to make an effort to keep up with your new repayment. If you cannot make the new repayment you will inevitably make your situation worse, possibly lose your home, if you have put it up as collateral and, cause more damage to your credit history.