If you’re struggling with debt, knowing the Easter holidays and added spend are just around the corner may be creating additional stress. The good news is there is a solution to ease the strain: debt consolidation.
Debt consolidation involves combining your current debts, including your credit card balances, car and home loans and other debts such as student loans, into one single and more manageable debt.
While the old saying ‘Don’t put all your eggs in one basket’ may hold true when it comes to your assets, putting all of your debts in the hands of a single lender can help you take control of your finances and ease the strain.
The benefits of debt consolidation
One of the big benefits of debt consolidation is that it offers the opportunity to secure lower interest rates and minimise your weekly or monthly repayments.
Debt consolidation also makes managing repayments easier as you only have one payment and one set of fees to pay. This can be a huge psychological relief.
Your debt consolidation options
If you’re considering debt consolidation, there are three main options open to you. Which you choose should be based on your specific financial situation and the current rates and offers available.
1. Combining your debt into a debt consolidation loan
This involves applying to a bank or other credit provider for a personal loan or debt consolidation loan, which you then use to pay off your existing debt.
- Consolidated debt is paid off over a set period giving you a clear end date
- Interest rates are generally lower than credit cards
- Minimum repayments are often higher than a credit card
- If you can’t make repayments, late fees and interest can increase your debt
If you did want to go down this route, we can help you find the right debt consolidation solution for you.
2. Moving all credit card debt to a new card via an interest transfer offer
Many credit card providers offer low or zero per cent interest rates to transfer existing credit card debt to a new card. These rates are typically available for a limited time period of approximately six months to two years.
- You pay low or no interest for the duration of the transfer offer
- Breathing space to pay down your debt (provided you make repayments)
- When the low-interest period ends, you pay a higher interest rate
- It may not consolidate your full debt, as some transfers are capped
3. Consolidating your debt with home loan refinancing or mortgage add-on
If you’re a homeowner, you can choose to consolidate your existing debts by transferring them to your home loan. You can do this by either increasing your current mortgage or by refinancing to a new larger loan.
- Home loans typically have a lower interest rate than personal loans
- If you refinance, you may be able to secure a lower home loan interest rate, especially in today’s low-interest climate
- Because the terms of the loan are longer, you’ll pay more interest over time
- Unsecured debts become secured debt, secured by your home. This puts your property at risk if you do default on payments
A debt consolidation calculator is a great tool to help you work out how you could best combine your unsecured debt into one single affordable payment.
Avenues to debt consolidation
There are many avenues you can explore for debt consolidation. These include mortgage providers, home loan providers, credit providers and balance and transfer offers.
But beware: lenders may put their own interests above yours and aren’t always transparent. So don’t jump at the first option presented to you. Instead, make sure you explore your options, compare interest rates, and look at fees and other costs.
In addition, make sure you consider any penalties you may face by pulling out of your existing credit agreements early. Sometimes these can work out costing you more than you would be saving by consolidating your debt.
Getting help with debt consolidation
Deciding whether debt consolidation is right for you – and which option and provider to go with – isn’t easy. If you make the wrong decision, you could actually make your situation worse. Because of this, you might want to think about working with an independent debt consolidation specialist like ourselves.
A good debt consolidation specialist will offer you an objective point of view, talk you through some other first-step options, such as negotiating with your lenders, and help you make smart decisions.
When selecting a debt consolidation specialist, here are some red flags that can indicate they’re not as helpful as they seem:
- They don’t hold a license
- They ask you to sign blank documents
- They refuse to discuss repayments
- They rush you through the transaction
- TThey won’t put all loan costs and the interest rate in writing before you sign
- They arrange a business loan when all you need is a basic consumer loan
Debt consolidation and credit score
It’s important to note that accessing any credit product will appear on your credit score. If you take out multiple credit products, this can negatively impact it. The same will happen if you can’t keep up repayments.
On the flip side, if you can manage your repayments – which should be easier with the right debt consolidation product – your score will rise.
Consider putting your debts in one basket today
Debt consolidation can be a great option if you’re struggling with credit card, unsecured loans and other debt. The sooner you deal with your debt, the sooner you can reduce it.
However, make sure you look at all your options or call in a debt consolidation specialist to help before you put your eggs in one basket – otherwise you may find cracks appearing in your revive financial plan.