Debt Consolidation Loan
If you’re overwhelmed by having different debts in different places, a debt consolidation loan might be the answer, reducing the stress of multiple debts and interest rates by simplifying your finances.
Debt consolidation is bringing your existing multiple debts together into one single new loan, subject to a single interest rate, with a single regular (usually monthly) repayment. This makes managing your debt situation significantly easier and often you can end up paying less each month that you were paying before, helping you manage your repayments and give you a clearer picture of your finances.
Paying off more than one debt at a time is not uncommon. But if you’re struggling to balance your debt repayments, debt consolidation may well be worth considering. You typically do this by taking out a new personal loan to repay your other existing debts, and then paying this new loan back over a set term.
For example, if you have one personal loan, say for $8,000, and two different credit cards with debts of, for example, $3,000, and $4,000, you’re likely to also have three different interest rates, multiple fees and charges and to be making three different repayments at different times each month.
This can feel overwhelming and make it hard to manage your cash. One option you have is to consolidate your debts by taking out a single personal loan to pay off the other personal loan plus each credit card and any outstanding interest. With just the one personal loan you’ll have just one repayment to make regularly over a set term – you can usually choose your own frequency of repayments (weekly, fortnightly or monthly)
This is likely to reduce the fees that you pay and if the interest rate on the new personal loan is lower than your other old personal loan and credit card rates this can help you get ahead in reducing your overall debt.
This doesn’t mean you’re on easy street – you still have to pay off the money you borrowed. But what it does mean is that you can take a breath and take back some control. To summarise, having one debt consolidation loan usually outweighs the benefits of having a heap of smaller debts.
The key advantages of consolidating your debt are:
Single, regular repayments that are easier to manage
One set of fees and charges
One potentially lower interest rate It can save you money, either by having less interest or fewer fees (or both).
Because there’s only one loan, setting up a repayment plan is easy – you’ll have a single fixed time frame of when you’ll be debt free allowing you to budget more easily and start saving.
It won’t impact your credit report. If anything, it will make your repayments more manageable. As you continue to make your repayments on time and in full, demonstrating good repayment habits and avoiding defaults through late payments, your credit score should improve.