What is debt consolidation and why should you consider it?

What is debt consolidation and why should you consider it?

Unfortunately, debt is rarely simple. If you are in debt, you are likely dealing with numerous creditors with varying interest rates and different payment sums. This will have undoubtedly become worse over COVID, as the government policies providing debt relief would have allowed you to rack up more debt without making any repayments. With those debt relief policies being rolled back, you are no longer being protected from your creditors. If this is your situation, it is okay to feel stressed, but you should not feel hopeless as there is no debt hole you cannot climb your way out of if you seek help and get smart with your money.

One method that may help you start your journey towards debt freedom is debt consolidation. Continue reading to find out more, or contact us to learn whether debt consolidation is right for your specific situation.

Debt consolidation: The basics

To put it simply, debt consolidation involves combining multiple smaller debts into one repayment that covers the same total. This means instead of paying multiple different debts every month, you will only need to be making a single affordable payment to cover all your debts. Consolidating your debts will therefore make keeping track of how much you owe much easier.

Usually, debt consolidation is done through a debt consolidation loan. If you are approved for a loan, then your credit provider will give you the funds necessary to cover all your old debts and from that point you will only be dealing with the single creditor. Some additional costs may occur if your debts have early payout fees. Creditors providing a debt consolidation loan will often offer either a lower interest rate or lower monthly payment compared to your older debts.

A debt consolidation loan can cover most debts, but to ensure you do not continue to build debt after getting a debt consolidation loan you need to close old accounts and cancel your high-interest credit cards.

Debt consolidation is a good option for anyone who:

  • Has multiple loans, credit cards, or other debts
  • Wants to lower monthly repayments
  • Wants to avoid high interest rates, fees, and penalties
  • Wants to only deal with a single firm instead of many

This sounds great in theory, but how does it work in practice? Well, Jennifer* was feeling stressed after becoming overcommitted. She had just left school and started working, so she applied for several loans and a couple of credit cards to buy furniture and help set herself up. Surprisingly, the loan approval process was really easy and in no time at all her debt went from $0 to $25k.

At first, the debt repayments where manageable, but when she had unexpected car repairs and her hours cut at work, she started to struggle.

Jennifer contacted Debt Fix after seeing our ad on the internet. We ran through a budget, looked at her debts and income, and provided a few relevant options. After carefully running through all the benefits and consequences of debt consolidation, Jennifer was able to make an informed decision. She weighed up all her choices and decided on a plan that allowed her to settle her debts affordably.

Today, Jennifer enjoys being stress free knowing that her debts are now under control.

When considering which agency to go to for a debt consolidation loan, you need to make sure you choose a company that will not exacerbate your problems. No two debts are the same, so you need to find an agency that will work to understand your individual circumstances and work with you to achieve a debt-free future. At Debt Fix, we can offer you a free debt assessment with one of our financial experts, this would be obligation free so you will not need to worry about making a commitment you are not comfortable with. Contact us to organise a free consultation and we can help you decide whether debt consolidation is the right option for you.

The benefits of consolidating debts

There is no one-size-fits-all solution to debt, so it is not possible to say what the benefits of debt consolidation would be in your specific circumstance. However, we can talk about the potential benefits of debt consolidation, which are as follow:

  • Save Money: You can save money in both the short and long term by consolidating your debts. If you have high interest rates on your current loans or you are being penalised for missing payments, then putting all your debts together so they become a single, low interest debt with lower monthly repayments, you will be saving money. The amount you can potentially save depends entirely on your personal circumstances, but some people have saved thousands of dollars by consolidating their debts.
  • Simplify Debt: Managing debt can be difficult when you’re making multiple payments to multiple companies with different payments due on different days. Consolidating your debts will simplify this as you will only be paying off one debt. It can be stressful juggling multiple debts, so you may wish to consolidate your debts just so you can manage your repayments more easily.
  • Improve Credit Rating: Changes to credit reporting in Australia means future lenders and credit card providers will be able to access a more detailed version of your credit history, meaning they will be able to see if you have struggled making repayments. This means when you apply for loans in the future, you may be offered a worse deal. Your credit history and standing as a reliable debtor will improve if you consolidate your debts as you will be able to make repayments more easily and on time.

Financial advice

There is no quick and easy solution to debt. For real financial advice tailored to your specific situation, you need to contact financial experts who can walk you through all your options.

No matter what your money troubles are, our friendly team at Debt Fix can help you. We have the knowledge and experience you need to have on your side to most effectively navigate your way out of debt. Debt consolidation may be the perfect solution for you or it may not work well given your current situation, either way, we are confident that we can find a way to help you manage your debt and start the path toward a debt-free future.

For a free debt assessment with a financial expert, contact us now.

*Jennifer’s name has been changed to protect her privacy

At Debt Fix, we help Australians begin their journey towards debt freedom. We are a Government Registered qualified debt Agreement Administrator and Finance Broker, and we exist to help everyday Aussies navigate their debt. Contact us today for more information on how you can take your first step out of debt.