It’s no secret that many people often struggle with debt and controlling their spending habits. Whether they’ve maxed their credit cards, used too many ‘buy now pay later’ platforms, or spent an excessive amount of money on extravagant gifts and travelling, debt is a growing issue across many Australian households.

To help you get back on track, an insight into debt consolidation is the first step to relieving your financial burdens.

What is Debt Consolidation?

Debt consolidation refers to the combination of all your debts (such as credit cards, personal loans, car finances or mortgages into one simple loan solution). This single larger debt will have an interest rate and repayment that is lower than the sum of the previous separate loans. This financial strategy can help you effectively improve your savings and keep track of repayments so that you can acquire greater control over your financial situation.

The benefits of debt consolidation are numerous – by only making a single repayment, you can easily manage your finances and avoid the overwhelming stress of juggling multiple smaller debts with higher interest rates or fees. It will also encourage you to make regular payments so that your credit rating can be improved for future loans.

Different Types of Debt Consolidation Loans

A debt consolidation loan is usually either secured or unsecured. Firstly, a secured debt consolidation loan also referred to as “mortgage refinancing”, is secured by a specific asset (collateral), which minimises the lender’s risk of losing money if the repayments are not met. This lower risk means that your debt consolidation will have a lower interest rate. In many cases, the asset being secured is typically real estate or property.

On the other hand, an unsecured debt consolidation loan is usually accompanied by a higher interest rate, since the lender cannot repossess the borrower’s asset if they stop fulfilling their debt commitments. This alternative option is more ideal for buyers who have concerns about income or job security.

How Can I Get Started?

The first step to debt consolidation involves calculating how much money you have. You should sit down and review all your financial statements, considering these following issues: What types of debt do you have (e.g. credit cards or loans), how much is owed for each debt, associated interest rates, monthly fees (if applicable), and cancellation costs. It’s recommended that you work with a broker to ensure your finances are properly examined.

Remember that while it may seem tempting to consolidate all of your debt to get lower interest rates, you should consider other factors such as the loan affordability. The loan term is another important consideration, involving the period of time over which you will completely pay off the loan principal. If your loan term increases, then the amount of interest will also rise due to the effects of compounding interest.

Debt consolidation is a complex decision which requires lots of research and planning.

Get in touch with our brokers today to find the right solution for you!