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If you’re dealing with unmanageable debt, such as multiple bills with different interest rates, repayment amounts and due dates, debt consolidation is a solution to help manage this.
Consolidating debt is the process of combining multiple debts like credit cards, store cards, personal loans, and other bills into one monthly repayment. Debt consolidation solutions may lower your overall interest rate, which can help you save money on interest, lower your monthly payments, and pay down debt in less time.
Debt consolidation is a popular solution for those juggling multiple debts looking to streamline their finances. Here’s why:
Debt consolidation isn’t right for everyone. There is a qualification process for borrowing and the risks include:
With an unsecure debt consolidation loan, most debt can be paid off, examples include:
Other debt consolidation solutions such as balance transfers, are primarily for credit and store cards.
General qualification criteria for debt consolidation include:
Each credit provider or lender will have its own approval process and criteria. The above highlight the minimum requirements most lenders require.
| Credit Card #1 | $12,000 | $300 |
| Credit Card #2 | $5,000 | $125 |
| Credit Card #3 | $10,000 | $250 |
| Personal Loan | $8,000 | $188 |
| Store Card | $5,000 | $137 |
| Payday Loan | $1,500 | $226 |
| Overdraft | $8,000 | $180 |
| Total Owed | $49,500 | $1,406 |
A consolidation loan of $50,000 with a interest rate of 8% over 5 years would change the monthly repayment of $1,406 to $1,014.
A difference of $392 a month or $4,704 a year.
Total Debt$0
Total Repayments$0 per month
New Monthly Payment$0
You could save$0 per month
Consolidation is a strategy to streamline finances, making it easier to manage financial obligations. As with all debt relief strategies there are pros and cons. Understanding the strategy, and sticking to the plan, can result in positive outcomes.
The main factor in successful debt relief, regardless of strategy, is the improvement in behavior towards money (financial skills).
Consolidation is a good idea when your monthly bills have been simplified, repayments reduced, and there is a real short and long term benefit to you. Debt consolidation is therefore a popular relief and reduction strategy.
There are numerous factors that determine how a debt consolidation loan may positively or negatively impact your credit score, including your current financial situation.
Whenever you apply for new credit, simply enquiring into credit can negatively impact your credit score. In particular, a lot of enquiries in a short period of time can damage your score.
Alternatively, if you have good credit and good cash flow, securing new credit may be easier; and by paying off multiple debts you could improve your credit score.
The short answer is “yes” if you don’t close the account when it was paid off. However, as mentioned in the drawbacks section, this can lead to more debt.
There are numerous debt consolidation companies throughout Australia. A good place to start is to do an online search for reviews on the company. Below are some additional considerations:
In Australia there are debt relief programs available that are funded by the government. Below are some of the more popular options:
Consolidation means that you are combining multiple debts into one debt. Essentially it is a restructuring of your finances so that they are more manageable. If you have multiple credit cards, store cards, or personal loans; consolidation may be a way to simplify your debt and lower repayments.
See our benefits and drawback section
Qualifying for a debt consolidation loan with bad credit can be difficult. Most lenders that provide unsecured loans will require a good credit score. Lenders that accept impaired credit, generally require security and/or they charge a higher interest rate – which can be counter-productive to debt consolidation.
Ideally a consolidation loan has a lower interest rate to the debt being consolidated.
