Short answer: rolling all your debts into one financial product with a single monthly repayment and potentially on a lower interest rate - keep reading to learn more.
Did you know that, just like your body or your lifestyle, your debt level could be classified as either healthy or unhealthy?
An example of healthy debt could be a mortgage, where you make manageable monthly repayments and end up owning a tangible asset – your own home.
Debt can become “unhealthy” when it becomes unmanageable and the person in debt is struggling to meet multiple minimum repayments without substantially paying down the amounts owing. Money, effectively, could be going down the drain if you’re not making repayments as expected. If you find yourself in this position it could be worthwhile considering if a debt consolidation is a good option for your cirmstances.
How do I know if a debt consolidation is for me?
If you find yourself in the position of managing multiple debts, it could be worthwhile considering if a debt consolidation is a good option for your cirmstances.
Managing multiple repayment terms on credit cards or other credit products can be stressful – and poorly managed debt could impact your credit score if you are not making your repayments on time, as well as just having multiple credit products on the go.
The solution could be debt consolidation: rolling all your debts into one financial product with a single monthly repayment and potentially on a lower interest rate.
This could substantially restore your financial empowerment and save you both money and stress over the long term.
What are some debt consolidation options?
There are several options available for consolidating debt. The right one for you will most likely depend on your personal preferences and circumstances, with a little research you’ll be able to narrow down exactly which option is best suited for you.
Common methods of debt consolidation are:
- transfering all your individual debts to a single, low-interest credit card;
- a debt consolidation loan; or
- home loan top-up.
What you should consider when consolidating your debts
When seeking a debt consolidation solution, it's a good idea to consider the interest rates, establishment fees and ongoing account fees, or you could end up paying more than necessary.
When comparing products, a reputable financial comparison site could help you look into upfront and ongoing fees plus penalties for paying off your existing loans early in addition to interest rates.
You should also look at the term for the new loan you are considering, and work out how much you could end up be paying over the life of the loan.
In general, the longer the loan term, the lower your regular repayments will be, however you could end up paying more in interest over the life of the loan.
Another aspect to consider is the features available, such as the ability to make extra payments without incurring a fee, or perks and benefits on products like credit cards.
If you are considering a debt consolidation loan your eligibility and the interest rate you qualify for may be impacted by your credit score. Some lenders offer lower rates to borrowers with stronger credit positions.
Where can get help if i'm struggling with debt?
All this may sound complicated – and it is! However, the eventual benefits to your financial health are well worth the time and trouble spent seeking the best solution for your situation.
There is help available (for free) through the National Debt Helpline. ASIC’s MoneySmart also has plenty of information and resources on managing debt.
It might be a bit confronting initially, but once you’ve done the research and decided on the right product, you’ll have an easily managed debt with a clear timeline of when you’ll be totally debt-free. No need to continue juggling multiple repayments, just easier cash flow and financial empowerment.
What is a credit score, how and why is it used?
There’s one number worth showing some love – and that’s your credit score. We explain how to get to know your number, and why it matters.