What is Debt Consolidation
Debt consolidation is the process of combining multiple unsecured debts (like credit card and personal loans) into one loan with one repayment.
How does a debt consolidation loan work?
A debt consolidation loan replaces multiple loans (such as credit card debt, personal loan debt and other unsecured debt) with a single personal loan usually at a reduced rate of interest.
How will debt consolidation benefit me?
A debt consolidation loan eliminates the need to make multiple repayments for unsecured debts. It ties up multiple loan repayments into one affordable monthly amount, allowing you to meet your debt obligations while minimising your monthly outgoings.
You may currently have two or more personal loans or credit cards with outstanding balances totaling $5800. The minimum repayment for all these debts is around $250 per month.
By consolidating all these debts into a single loan over a longer term, the amount you may have to repay could be reduced to less than $165 per month.
How often can I make repayments on a debt consolidation loan?
With a debt consolidation loan it is usually possible to make payments weekly, fortnightly or monthly. The length of the debt consolidation loan is set for a repayment schedule which meets your needs.
You may be able to choose between 12 months and 7 years depending on the purpose and the amount of your consolidation loan.
Explain the difference between a variable rate and a fixed rate debt consolidation loan?
A variable rate debt consolidation loan allows you the flexibility of making extra repayments at any time and at no extra cost.
A fixed rate debt consolidation loan means your repayments are fixed for the duration of the loan.
Do I need security for my debt consolidation loan?
If a debt consolidation loan is an unsecured loan, then no security is required by you.For larger amounts security will be required.
What fees are involved in a debt consolidation loan?
Most debt consolidation loans have no ongoing fees and no early repayment fees. Though an establishment fee may be payable.
What do I need to know about applying for a debt consolidation loan?
When applying for a debt consolidation loan you need to be careful and to be fully informed. Make sure:
- You fully understand what you are doing
- The solution will be of real benefit to you and not just a short term fix
- You have achieved control over your debts
- Your repayments will be reduced and not increased
- You are fully informed of the consequences of the steps you are taking
- There are no hidden costs within the debt consolidation loan
