Repaying multiple debts at once can be stressful, especially if bad credit is limiting your debt relief options. One of these options is a debt consolidation loan, which typically involves you taking out a personal loan, using the extra funds to wipe your debts clean, and gradually paying off the new loan in single monthly instalments over a set time.
There are also tailored strategies for if you have a home loan – where you consolidate your other debts into your mortgage – or if you have credit card debt with a high interest rate – where you transfer the debt to a new credit card, one that has a low interest rate or a no-interest rate introductory period.
Whichever type of debt consolidation loan you choose, a deeper understanding of the application process will help prepare you for what’s to come and give you a better idea on the potential outcomes that you can achieve.
What to Expect From the Debt Consolidation Loan Application Process
There are many steps in the debt consolidation loan application process. And if you have bad credit, then the idea of talking to an advisor may be daunting; you may be worried about being judged, denied an application, or offered a bad deal.
It’s important to remember a professional debt consolidation team will never judge you for your situation. It is their responsibility to help you gain a better understanding of your situation and get you on the right path to financial freedom.
If you have bad credit, a debt consolidation expert can help strategise ways to improve your credit score over time and determine the best course of action to start reducing debts.
Here is a step-by-step breakdown of the process:
1. Provide a Financial Overview
The first step in the application process is to complete a short online questionnaire. Your answers will give your advisor an overview of your finances and the nature of your debts. This step is 100% confidential and, until you complete the questionnaire and provide your contact details, no one will contact you.
During the questionnaire you will be asked to provide your:
- Total debt amount – including all combined debts from credit cards, personal loans, home loans, and other secured or unsecured loans.
- Employment status – full time, part time, casual, self-employed, unemployed, or retired.
- Marital status – married, de facto, single, widowed, or divorced.
- Contact details – first name, last name, email address, and phone number.
- Living situation – whether you are a homeowner or renting.
- Number of dependents – including your spouse, your children, any other person you are in an independent relationship with, and a person who is substantially financially dependent on you.
After you complete the questionnaire, your advisor will be in touch to arrange a suitable day and time for your first consultation.
2.Meet Your Debt Consolidation Advisor
Your first consultation is the first meeting with your debt consolidation advisor. First, they will review and clarify the answers you have in the online questionnaire. Once they have certified that your answers are true (and an accurate representation of your circumstances), they may ask you to provide more detail information about your finances, including calculations of your total income and expenses.
To calculate your budget we recommend the Debt Fix Budget Calculator. This calculator lets you calculate the different fields of your income and expenses on an annual, quarterly, monthly, fortnightly, or weekly basis. This way you get a comprehensive overview of how much money you have coming in and going out, and how healthy your cashflow is at different time intervals whether that be for a few weeks or for up to a year.
By giving your advisor an accurate overview of your income and expenses, they will know how much money you have left to contribute to your debts. With this information they can then determine the size of the loan that you need, and how much you can afford in monthly repayment instalments.
3.Compare Loan Options
The type of debt consolidation loan that is right for you will depend on your unique circumstances. If you have multiple debts and do not own a home, then your advisor may recommend a personal loan. This simply means you will take out a loan, use the money from that loan to pay off your debts, and then gradually repay that loan in bite-sized monthly instalments for a set time.
What if you are a homeowner with a mortgage and multiple debts? Then, your advisor may suggest consolidating your other debts into your mortgage, so that you pay off both your mortgage and your debts at the same time each month. As a result, you only keep track of and pay for one monthly instalment, as opposed to staying on top of multiple debts where each one has a different due date and payment amount.
Regardless of your individual circumstances, your advisor will work closely with you to propose the right debt relief plan for you. Also, they will make sure that the terms of your debt relief plan are, as reasonably possible, favourable to you. Before you agree to the loan, you will know exactly what the interest rate is, whether the interest rate is fixed or variable, what fees and charges apply, the length of the loan term, and whether you can pay off the loan early without penalty.
4.Apply for the Loan
Once you are happy with the debt relief plan and terms, your advisor will apply on your behalf. They will help fast track the approval process and get the money into your account as soon as possible. If you are consolidating your other debts into your mortgage, or applying for a credit card balance transfer, then your advisor will also streamline the application process for these debt relief plans until they are in action.
Either way, you will receive the same level of support across the board, regardless of the type and size of your debt consolidation loan strategy. Rest assured, your advisor will keep you in the loop each step of the way, and they will notify you once your application is successful.
5.Pay Off Your Debts, Close Your Old Accounts
Now you can start to pay off, partially or fully, your other debts. If you have taken out a personal loan, then you will use the extra funds from that loan to pay off your other debts. If you have consolidated your other debts into your mortgage, then those other debts will now contribute to your total monthly mortgage instalments, which you will need to repay at the agreed due date each month. And lastly, if you have completed a credit balance transfer, then you will continue to repay your credit card debts at the newly agreed amount and interest rate.
As you settle each debt account, we encourage you to contact each lender or credit card provider and ask them to close your account for you. This will ensure you will no longer be tempted to use the account, preventing the risk of accruing further debt, and that you will no longer pay ongoing fees or interest.
6. Repay Your Loans
You will be expected to gradually pay off your loans on the same date, and for the same amount, per month. You can arrange for the money to be automatically debited from your account, which will save you from the hassle of having to remember to make the payment on your own; just make sure there is enough money in your account, so that you avoid the risk of missing a payment and potentially being penalized.
In addition, notify your advisor if your circumstances change. If you experience a sudden change in your personal or professional status, and it may impact your ability to continue to meet your debt repayment obligations, then let your advisor know. They will work with you to renegotiate the terms of your debt consolidation loan so that it better suits your new circumstances.
Navigating the Debt Consolidation Application Process Made Easy
While the idea of seeking debt relief with bad credit can be hard, it is important to remember that help is at hand, there are still options available to you, and there are people who can help you make sense of your situation and set you on the right path to financial freedom. By doing so, you will have a much greater chance of regaining control of your finances and getting your debts under control.
To arrange a free no-obligation debt analysis from Debt Fix, get started today. It only takes 30 seconds to get started and making an application won’t affect your credit rating.