A Guide to Debt Consolidation

Consolidate all of your loans into one easy loan and repayment.

Do you have several debts with multiple lenders and repayments due at different times? Then, you should consider a debt consolidation loan. Debt consolidation loans can help you control your debts, make it easier for you to manage their repayments, and save your money on interest fees and charges.

What is a debt consolidation loan? How can it be helpful for you? How can you apply for it? What are the types of debts that you can consolidate? In this guide, we’ll answer all these questions.

Understanding Debt Consolidation Loan

In a debt consolidation loan, multiple debts are combined into a single lower interest loan. Your debts are bundled with the home loan which means that you can make a single monthly repayment for all your debts. The interest you are required to pay is reduced by consolidating your debts into a home loan because the interest rates on a home loan are generally lower than what is charged on unsecured debts.

If you currently pay off various debts like personal loans, car loans or credit cards, you should consider debt consolidation loan to save yourself from paying a high amount in interest.

Types of Debts That can be Consolidated

The debts that can be consolidated include store cards or credit cards, personal loans, car loans or other credit accounts.

How to Consolidate Debts

When you are considering debt consolidation loans, follow these steps.

1.     Establish the Amount You Are Capable of Repaying

The first step you need to take is calculating the amount you can comfortably repay each month. This will give you an idea about the term or period over which you should take out the loan. It’s important to be perfectly comfortable with your monthly repayments as you must make the repayments each month without fail.

2.     Calculate How Much You Can Save

You must determine whether the repayments you’ll be required to make after your debts are reconsolidated are lower than what you’re currently repaying.

3.     Prepare the Documents

Your lender will typically require statements of home loan for the last one year, recent payslips of past three months, most recent payment summary statement, recent statements of loan for all other debts and ID verification to assess your eligibility for debt consolidation loan.

Benefits of Debt Consolidation

Some benefits you get from consolidating your debt include:

1.     Better Cash Flow and More Saving

Debt consolidation can free up extra cash because of reduced interest payments which improve your cash flow and results in more savings.

2.     Better Debt Management

Debt consolidation loan can help you manage your debt in a better way and control your outgoing expenses as it provides a single repayment plan for all your debts. You won’t have to worry about managing and repaying multiple debts, you’ll only have to manage one loan with a single repayment each month.

3.     Repayment Term Can be Extended

Usually, there’s a specific period for repaying car loans and personal loans. But, when these debts are consolidated, the term of repayment of these loans will extend and it will be the same as the repayment term of your home loan.

Conditions for Debt Consolidation Loan Approval

There are several conditions that you must fulfil before you get approved for a debt consolidation loan. Usually, lenders will approve you for a debt consolidation loan, if your credit score is good, you can provide evidence that you have made home loan repayment regularly for the past six months, you have paid other loans like credit cards, personal loans and car loans without any delay for the past 3 months, you can provide proof of history of stable income and you have been employed for at least one year.

Debt Consolidation with Bad Credit

Some lenders may not approve you for a debt consolidation loan if your history shows bad credit. However, there are a few lenders in Australia who accept debt consolidation loan application of people who have a low credit rating and you may be able to qualify for a debt consolidation loan from them. In order to increase your chances of getting approved for a debt consolidation loan, you should do these things:

1.     Get Your Credit Report

Get your credit report and review how bad your credit rating is. Seek help from a financial advisor if you cannot determine the condition of your bad credit.

2.     Start Paying Your Debts on Time

If you haven’t been repaying your debts on time, you won’t be eligible for a debt consolidation loan. However, you can improve your credit history by making timely payments on all your debts for six consecutive months. This will improve your chances of getting approved for a debt consolidation loan.

3.     Stop Applying for Several Loans

If you have a bad credit, don’t apply for a debt consolidation loan from different lenders because if there are many credit checks in a period of six months, your credit score will be negatively affected. Lenders won’t grant you a loan if they suspect that several lenders have declined your loan application.

The Bottom Line

In a nutshell, a debt consolidation loan is a good option that can help you save money in the long-term because of reduced interest rates. Moreover, a debt consolidation loan can help you manage your debts better through a single repayment plan.

However, we don’t guarantee that debt consolidation loan will be the right option for you as your finances can deteriorate if you take out a consolidation loan that you cannot possibly afford. You should talk to a financial advisor to determine if the debt consolidation loan is right for you or not.

If you are considering debt consolidation loan and need professional assistance, talk to our Experts at Josh Financial Services 1300 537 000