Debt Consolidation & How It Works
What Is Debt Consolidation?
Debt consolidation simplifies debt by combining multiple debts into one repayment. This means you won't have to worry about paying multiple debts, loans and credit cards to different companies every month, as you'll only have a single payment to make.
Consolidating debt could be helpful if:
- you have multiple loans, credit cards or other debts
- you want to lower your monthly payments
- you want to avoid high interest rates, fees and penalties
- you only want to deal with one firm, not several
When you consolidate loans into one payment, you'll often enjoy a lower overall interest rate, smaller monthly payments and more flexible terms, making a better fit for your circumstances.
Why choose debt consolidation through Debt Fix?
Consolidating debts can make debt management less of a headache by bringing them together under a single affordable payment.
At Debt Fix, we know there's no “one size fits all” solution to managing debt. That's why our specialists will give you all the information you need about the various cost-effective options we offer.
We're committed to giving you the exceptional customer service you deserve. We'll make sure we understand your needs and will work closely with you to design an affordable debt solution that suits your individual circumstances, whatever they are.
With our “No Fix, No Pay” guarantee, you can talk to our experts and decide if you want us to help you, with no obligation if you don't. We'll give you a free debt assessment and help you to choose the best debt solution for your situation, with fast approval.
Why Should I Consolidate Debt?
Debt consolidation loans can benefit different people in different ways, whether you just want some extra money every month or you need debt consolidation loans for bad credit. Our consultants will explain the pros and cons of consolidating debt so you can decide for yourself if it's the right choice in your situation.
Payment consolidation will provide you an opportunity to combine debts into one affordable repayment so youcan better manage your debt and look towards a debt free future,
The most common reason for consolidating debts is the savings you can make – in the short term and the long term.
If you're losing money by paying high-interest loans or credit cards every month, or facing penalties for missed payments, these can be avoided when you roll these debts into a single, more affordable payment that's easier to manage.
Depending on how much you owe and how much you're paying, consolidating debt repayments could save you hundreds or even thousands of dollars in interest alone.
You'll also avoid paying annual fees or other charges for multiple loans or credit cards when you only have a single loan to deal with, leaving more left over at the end of the month.
No more juggling debt
If you're making debt repayments on loans,credit cards, and other debts to different companies at different times , this can be a lot to remember. It could even mean you accidentally miss payments and have to pay penalties if your employer doesn't pay you on time or you don't have money in your bank when it's needed.
When you only have one loan payment to think about, budgeting gets a lot easier. You'll also have less paperwork to deal with and a single point of contact if you have any issues or questions.
Improve your credit rating
Following the changes to credit reporting in Australia, it's now even more important to keep a good credit history to improve your chance of getting a good deal on loans and credit cards in the future.
Comprehensive credit reporting now allows lenders see your financial activity in more detail than before – the good and the bad. If they see that you're struggling to keep on top of multiple lines of credit, they'll be less likely to approve you for a loan, or they could offer you a worse deal when you apply for a loan or a credit card.
On the positive side, these changes to credit reporting mean it's now easier to show lenders that you're a reliable customer if you can demonstrate good financial habits – and debt consolidation can help.
The success of your loan application depends on a range of factors not least of which is your ability to service the new loan, your credit reputation and purpose of the loan. Debt Fix has access to a panel of lenders who specialise in debt consolidation no matter what your circumstances may be, to help you get your finances back on track.
Get debt-free sooner
The Debt Fix Debt Management Team will work closely with you to design a tailored solution. Most people rely on a solution with smaller repayments so they'll have more money left over every month, but if you want to be free from the burden of debt sooner, you can choose to pay more each month.
We'll help you to choose the best debt solution to suit your needs. Use our free repayment calculator to see how much you can comfortably afford to pay each month.
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How does debt consolidation work?
Debt consolidation involves combining ('consolidating') a number of smaller debts into a single larger debt that covers the same total amount. This is normally done with a debt consolidation loan, but there are other options to better manage debt if a debt consolidation loan is not right for you
If you're approved for a loan, credit providers will lend you the money you need to settle your old debts and close your old accounts. This may involve charges if your debts have early payout fees.
Instead of having to manage multiple payments every month, you'll now only have one payment to make on a single date.
In most cases, credit providers will offer a lower interest rate or lower monthly payment compared to what you were paying before (though you may choose to pay more each month if you want to pay off your debt faster).
What type of debt can be consolidated?
Whatever type of debt you have, a debt consolidation loan will usually cover it. Types of debt that can be consolidated include:
- personal loans
- home loans
- car loans
- credit card debt
- store card debt
- private loans
- utility bills
- medical or legal bills
If you want to avoid getting into more debt after your old debt is consolidated, it's important that you close your old accounts and credit cards after they're settled so you won't be tempted to use them again.
What is secured and unsecured debt?
You might hear debts referred to as secured or unsecured.
- Secured debt is loans with an underlying asset that the lender can repossess if you don't keep up with your repayments. Examples of secured debt are car loans and home loans, where the car and the house are the assets. The advantage of secured debt is that it often has a lower interest rate.
- Unsecured debt doesn't have an underlying asset, so interest and charges are usually higher to protect the creditor. Examples of unsecured debt are credit cards, student loans and unpaid utility bills, such as phone bills and electricity bills.
Both types of debt can be consolidated with a loan, but debt consolidation is most beneficial for people who have a lot of unsecured debt with high interest, especially credit cards that can sometimes cost thousands of dollars a year in interest alone.
Debt consolidation process
If you decide that consolidating debt is the right choice for you, a Debt Fix Debt Management specialist will make sure you know what to expect and will guide you through the process step by step. This normally involves:
1. Work out what size of loan you need
Your debt consolidation loan needs to cover your existing debt as well as any fees or charges that may be involved. If you need to pay charges to close your existing accounts, these should also be included in loan amounts.
2. Compare loan options
Debt Fix exclusively works with reputable lenders so we can offer the best debt consolidation loans in Australia. We'll only recommend a loan when it's the right match for your needs, and we'll tailor it to your exact circumstances.
3. Apply for a loan
We offer fast approval for loan applications through our platform, helping you to get your money as soon as possible. Our advisors will help you to make your loan application, so you won't have to do it alone.
4. Pay off your old debt
When you receive your debt consolidation loan, the first thing to do is to use the funds to pay off your old debts and any associated fees.
5. Close your old accounts
When your accounts are settled, you should contact each lender or credit card provider and request that they close your account. This can be done over the phone or online. Check that your accounts are really closed, as accounts that are still open may still charge annual fees. You might also be tempted to use the account again and get into more debt.
6. Start making repayments on your new loan
Your debt consolidation loan will usually need to be paid on the same date every month. Make sure you always have enough money in your bank account, or you could risk missing payments and being penalised.
How to Choose a Debt Consolidation Loan
Debt consolidation isn't one-size-fits-all. Depending on the types of debts you have and what your lender offers, you could have several options for consolidating debts, which all have their pros and cons.
Debt consolidation options
An unsecured debt consolidation loan can absorb multiple smaller loans and credit cards into a single loan. This new loan may have a fixed or variable interest rate with fixed monthly repayments and a fixed term.
If you already have a home loan, you might be able to consolidate other debt into your mortgage. The advantage of doing this is that you'll have much longer to pay off your debt, since home loans typically have longer terms than other loans.
The downside is that you might end up paying more for your debt in the long term, as there will be more interest payments.
Credit card balance transfer
An alternative to debt consolidation, if you have credit card debt with a high interest rate, you can transfer this debt to a new credit card with a lower interest rate or an interest-free introductory period to save money.
The downside is that once the introductory period expires, you may have an even higher interest rate than before if you still haven't paid off your debt.
When you've decided what type of loan you want, talk to our financial experts to find out what your options are. At Debt Fix, our advisors will work closely with you to design a tailored loan that best matches your needs and wants.
Debt consolidation loan checklist
It's important that you know what to look for when you're comparing loans from different debt consolidation companies. You need to choose a loan that suits your lifestyle and is affordable, so it won't drive you further into debt.
Some of the most important questions to ask your lender are:
What's the interest rate?
You should be paying less interest overall than you are currently.
Does it have fixed or variable interest?
A fixed rate offers more security, while a variable rate changes with the markets. You can discuss the pros and cons of both options with your Debt Fix consultant.
What are the fees and charges?
Make sure you know everything you'll need to pay, now and in the future, including annual fees and penalties for late or missed payments.
How long is the loan term?
A longer term loan will have smaller monthly payments, but you'll pay more in interest and fees overall.
Can I pay off my loan early?
Some lenders charge a penalty if you want to pay off your loan before the term finishes.
Is the lender licensed?
For peace of mind, check ASIC's Professional Registers to make sure your lender is licensed to offer debt consolidation loans in Australia.
Is Debt Consolidation Right for Me?
Consolidating debt is helpful in many situations, but it's not always the answer. That's why it's important to seek trusted financial advice and find out all the options available to you, so you don't accidentally get into more debt.
When you speak with the Debt Fix Team, we'll give you tailored advice for your unique situation. We'll also ask you to consider the following issues, to help you decide if consolidating debt repayments is right for you.
Debt advice for people with bad credit
If you have bad credit or a history of missed payments, these are red flags to creditors that could mean they don't offer you a loan.
You could still be eligible for debt consolidation with bad credit, but this might only be available at a higher interest rate or with higher repayments than you're paying already.
For example, while you might currently be paying $550 total per month for multiple debts, a consolidation loan could cost you $700 per month. In this situation, there may be no advantage to refinancing debt.
Read more about bad credit personal loans.
Can you afford the repayments?
If you've had a change in income, or you just want to have more money left over to cover your outgoings, you need to make sure that you can comfortably afford the repayments of your debt consolidation loan every month.
You'll have some flexibility to set the repayment amount you're happy with, but this needs to meet the minimum requirement. If you choose a higher repayment to pay off your debt faster, you need to be confident that it's realistically affordable and that you won't be left out of pocket.
Try our free debt calculators to see how much you can afford to pay. Our online calculators can give you a rough idea of your monthly repayments, but they should only be a starting point as they don't take into account your unique circumstances.
For a more reliable quote tailored to your situation, contact us for a free assessment.
Are you currently employed?
Credit Providers require you have a secure source of income, so there is less risk of you missing your payments. If you can't show that you have secure employment or adequate income, you may not be approved for a loan.
If you're self-employed, a contractor or you've only recently started a job, we can advise you on the documents you need to provide to improve your chance of a successful loan application.
You might not be eligible for a loan if your income relies largely on government benefits. If you're on Centrelink or another government benefit, contact Debt Fix’s Debt Solutions team to find out how this affects your application and repayment plan.
Should you consolidate all of your debts?
A debt consolidation loan can cover as many debts as you want, but you don't have to include all of your debts. There could be advantages to keeping one or more existing loans separate if these have a lower interest rate or a longer term than your consolidation loan offers.
Home loans typically have a much longer repayment period than other types of loans, often up to 30 years, so you might want to keep these as they are or to consider refinancing instead.
Will you save money?
If you're not worried about meeting your monthly repayments, you may want to know if you'll be financially better off in the long run after you consolidate loans into one payment. To work this out, you first need to calculate how much you're already paying so you'll have a benchmark.
Having a single loan is more convenient, and means you'll pay less in fees, but it could cost you more overall if you choose a longer loan term with smaller monthly payments. This is because you'll be paying more interest over a longer time. Choosing to pay more towards your repayments every month will save you money in the long term and mean you get out of debt faster, as long as you can afford it.
A single loan may result in there being lower fees and charges in comparison to multiple debts, there will usually be other costs involved when you consolidate loans into one payment. These could include application fees, balance transfer fees and exit fees for paying off your old debt early. Make sure you include these in your calculations when working out whether you'll be better off.
Remember – there's no quick fix for debt
Debt consolidation can be an effective strategy for managing debt, but not for preventing financial problems. If you're already struggling to dig yourself out of debt, consolidation loans could get you in even deeper.
To help you make your decision, Debt Fix recommends:
- Get a copy of your credit report and check for any errors or areas where you can improve.
- Calculate what you're currently paying for your debts and whether you'd be better off.
- Make sure you know about all charges and costs involved with the loan.
- Consider whether you can change your spending habits to help you avoid further debt.
Talk to a Debt Fix advisor to help you to decide whether more debt is really the answer for you, or if you'd be better off choosing a different option.
Can I Consolidate Debts If I Have Bad Credit?
Bad debt can affect anyone. Whether you've lost your job or had to deal with medical bills or another financial emergency, a few black marks on your credit report can make it harder to get the financial help you need. Even something positive like having a baby can lead to financial stress.
Consolidating debts with a more affordable loan can help people with bad credit to get back on the right track. When you only have the one payment to think about, keeping up with repayments becomes much simpler – but getting approved for a loan in the first place isn't always straightforward.
Debt consolidation loans for bad credit
If you have a bad credit reputation, it can be difficult to impossible to get approved by the big banks for the loan to consolidate debt.
Sometimes a 'yes' can become a 'no' if a bank initially accepts your loan application but it then gets declined by their credit approval team. Even if you do get approved for a loan, the interest rate could be higher than what you're already paying on your existing loans and credit cards.
Don't worry – help is available at Debt Fix. Our Debt Solutions Team can present affordable options no matter what your situation is.
Talk to our experts today to find out what your options are for bad credit debt consolidation loans in Australia.
What are the Alternatives to Debt Consolidation?
If you're not suitable for a debt consolidation loan, or don't think it's the best fit for you, there are other strategies to help you manage your debt.
Debt Fix's Debt Management Team are experts on all aspects of debt options. We'll discuss all the choices that are available and recommend the most suitable strategies to simplify or reduce your debt, helping you to take back control of your finances.
Following are some of the approaches we might recommend, depending on your situation.
Get out of bad financial habits
Are bad habits keeping you in debt? Taking a hard look at your outgoings could reveal the underlying cause of your debt problem and areas where you could save money.
Whether it's subscriptions you don't use, luxuries you can live without or taking advantage of sales and discounts, the money you save can be put towards paying off your debt faster or covering other urgent expenses.
By cutting out unnecessary expenses, drawing up a budget and sticking to it, you could find that you don't need to refinance to afford your monthly repayments – though debt consolidation could still be effective for streamlining your debt.
Talk to your loan or credit provider
If you feel burdened by your current repayment schedule, you can ask your loan provider or credit card company if they can change your payment arrangements, either by lowering your monthly repayments or extending your loan term. This isn't always possible however, or it may involve charges.
If you're struggling to pay your home loan, you can talk to your mortgage provider about switching home loans to a more affordable arrangement. This will normally cost more in the long term, as you could be paying more interest overall for smaller repayments.
Credit card balance transfer
If you have credit card debt, a 0% interest balance transfer credit card or low-interest balance transfer deal could give you the time window you need to pay it off without adding more debt.
A balance transfer involves transferring your debt from a high-interest credit card to a new credit card that won't charge any interest during the introductory period. Once this period runs out, you should cancel your old credit card so you're not tempted to use it again.
While a balance transfer credit card can be effective for reducing debt, it could also make the problem worse if you don't manage to pay off your debt during the interest-free “honeymoon” period. After this expires, these cards typically revert to a high interest rate, and you could be back where you started or even worse off
If bad credit card habits caused your debt in the first place, trying to fix credit card debt with another credit card is not recommended, unless you're fully confident that you can kick the habit once and for all.
Sell or refinance your property
If you've built up equity in your home over many years, refinancing your home loan can unlock this to give you the financial boost you need. If you choose to refinance, your Debt Fix broker will help you to find the most affordable mortgage option that suits your circumstances.
If your situation is desperate and you face repossession of your property for missed mortgage payments, you could consider selling your home. While this should only be a last resort, it could give you the money you need to pay your debts and downsize into a more affordable property, rather than waiting for your home to be repossessed and auctioned off by your creditors for a lower price.
A debt agreement is not the same thing as debt consolidation. While consolidation is a personal loan that absorbs your debts from multiple creditors, a formal debt agreement is a settlement arrangement made to consolidate payments into one interest free payment plan. This usually involves cancelling interest on the loan so you only have to settle the remainder. But like any option, there are benefits and consequences which must be considered before making any commitment.
Debt Fix’s Debt Management Team can walk you through the process and provide you information so you can make an informed decision. Whilst a Debt Agreement may not be for everyone, it could be a viable option if you are struggling to pay your debts along with your living expenses, can’t get a loan and want to avoid the harsh consequences of bankruptcy.
Find out if you qualify for financial hardship consideration
If you have trouble paying your debts, did you know that credit providers in Australia are obligated to consider applications made for financial assistance?
If you're willing to make repayments on your loans or credit cards, but you're unable to do so temporarily due to circumstances beyond your control, you can talk to your creditor to find out whether you qualify for hardship relief. This could be due to situations such as:
- changes in income or employment status
- injury or illness preventing you from working
- life events such as having a baby, separation or a death in the family
Financial hardship relief is not guaranteed, but providers have an obligation to reasonably consider applications made before they make their decision on a case-by-case basis.
Ask family or friends
If you're in a desperate situation, consider whether the people closest to you could lend a helping hand. You should only approach individuals for a loan if you're confident that they can afford to lend you the money on a temporary basis without it causing them harm, and that your circumstances mean you can afford to pay them back in the time agreed.
If you break or modify this agreement, your financial problems could cause other people to suffer and put a strain on your relationships. Even if a loan is informal, your creditors can still take legal action against you if you don't pay your debts.
Talk to our team about Different Debt Consolidation Options
At Debt Fix, we offer much more than debt consolidation. If your financial situation is urgent and not likely to change in the near future, contact our team to discuss other options that could be more suitable for you. We'll help you get back on your feet.
Worried About Debt? We're Here to Help
Whatever money trouble you're dealing with, our friendly professionals at Debt Fix have the knowledge and experience to help you.
Whether you're struggling to meet your monthly payments, you need money urgently or you have bad credit and you've been refused a loan elsewhere, we offer easy approval debt consolidation loans designed to suit your unique circumstances.
A permanent debt solution could be a phone call away. Arrange a consultation with our debt specialists and we'll explain in simple terms how you can:
- consolidate your debts into one easy payment
- pay less on interest or monthly repayments
- break the vicious cycle of debt
- take your first step to a debt-free future
Call our team today on 1300 332 834 for your obligation free debt analysis
- Receive a free personal debt analysis (valued at $300)
- Schedule a confidential phone consultation with a Debt Fix advisor
Debt Consolidation FAQs
Still have questions about consolidating debt? Read these answers to frequently asked questions or get in touch with our team so we can give you the answers you need.
Q: I've been rejected for debt consolidation loans elsewhere. How can Debt Fix help me?
A: If your bank or other lenders have declined your application, this could be because you have poor credit or for other reasons. Whatever your situation is, we're confident we can find a solution to help you manage your debt.
Q: I'm being chased by debt collectors. I need debt help fast!
A: We know how stressful financial emergencies are. That's why we've made our application process as straightforward as possible, with fast approval for loans to help you get the money you need as quickly as possible otherwise if a loan isn’t possible we could explore other more viable options depending on your circumstances.
Q: Do I have to contact my credit providers myself?
A: No – when you apply through Debt Fix, we'll contact your creditors on your behalf.
Q: Is there a limit to how much debt can be consolidated?
A: Most types of debts can be rolled into a debt consolidation loan. If you have multiple different types of loans and credit cards, these can all be combined into a single loan with one convenient monthly repayment. Talk to our team to find out if all of your debts are eligible.
Read More about Debt Consolidation
Here are some of out most-read articles about debt consolidation loans this month:
National credit reporting requirements have recently been amended. This gives lenders access to more information about your financial history than ever before. Find out how this impacts applications for credit cards, loans and mortgages and what this means for you.
Are you considering filing for bankruptcy? It's important to be aware of the risks and the assets you can lose through this process, as well as the ones you can save. Find out more about what the short-term and long-term impact of bankruptcy could be for your future.
Want to know more? Follow the Debt Fix blog for the latest news, budgeting tips and more advice to help you free yourself from debt for good.