Debt Consolidation: All the facts

Whether you are struggling with debt or you are simply looking for a way to save money on your bills, debt consolidation is a wonderful way to organise your finances.

With careful consideration, patients and a little bit of insider knowledge, consolidating your debts can save you hundreds of dollars in interest, simplify your budget and rid you of debt much faster.

However, there are risks involved and if you don't carefully consider your options you consolidation loan could leave you further into debt with little hope of recovery.

To ensure you aren't left out in the cold we have complied all the information you need which will help you secure a beneficial consolidation loan.

What is debt consolidation?

Like many Australians, you probably have more than one debt to your name. Credit cards, a personal loan, car loans and a mortgage are all common loans to have.

Having several loans at one time means you are making several monthly repayments each with their own set of fees and interest.

Consolidating these loans means you are left with one monthly repayment with one set of account keeping fees and only one lump of interest to pay.

To do this, you need to take out a loan of the amount you owe on all you debts. You use this money to pay out the individual loans and you are left with the one repayment with one set of fees and one interest rate.

Why consolidate?

Debt consolidation loans can reduce your repayments, minimise your interest, simplify your finances and ease the stress of repaying your debts.

 The money you save through reduced interest and account fees can be used for other things such as rennovations on your home, a holiday, a savings account or to repay other debt which you cannot consolidate.

The single repayment each moth is easy to keep track of so you won't accidentaly miss a repayment and be penalised with a late fee. 

The new loan could extend the life of the loan, so you have more time to make the repayment, or it could shorten the life of the loan so you are out of debt sooner.

Where to start

You first need to determine what loans you would like to consolidate. If you have a credit card or a loan with a very low interest rate, it might be better to consolidate your other loans and use the money you save to pay off your small interest debt seperately. Look at your finances by writing down each of your debts and include how much money you owe and the interest you are paying.

If you apply for a consolidation loan through an existing creditor, you may be able to save money on some cancelation fees, however you might not be getting the best deal. You should always shop around for the best interest rate, and if you prefer to stick with your existing creditor, tell them about the rate you are being offered elsewhere and see if they can't beat it.

Once you find a great deal through a credible lender you can apply for the loan. Go through the paperwork with a fine toothed comb. Loans are often rejected because the applicant didn't fill in the form correctly or accidentally forgot to include some vital information.

What to look out for

Consolidating your debts can save you thousands but if your aren’t careful it could cost you thousands more.

The chances are your loans will be through different creditors and you may have to break some of your contracts to consolidate. This can incure fees such as: 

·         discharge fees

·         deferred establishment fees

·         break costs

·         loan fees

·         legal fees

Your new lender will have fees of their own. These might include:

·         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.

The fees involved will be different depending on the loans you are trying to consolidate and the lenders you are ging through. Be sure to check with each of them.

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 help negotiate with your creditors. Where necessary, they could refer you to Positive Solutions Finance to find an affiliated lender who specialises in consolidation 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 information on consolidating your debts, talk to An Aussie Who Cares. Visit Debt Recue or call 1800 00 3328.