Debt consolidation involves rolling all of your existing debts into one loan. This can be a sensible solution to reducing fees and interest, and managing your repayments.
Taking out credit can be a positive thing, as it allows you to make large purchases such as a car or a holiday that you couldn’t afford with your savings, but can afford in repayments.
Unfortunately, unexpected life events such as sickness or redundancy can turn your finances into a different story. When things are getting hard to handle and you can’t keep up with past repayments, a debt consolidation loan may be able help you move forward.
The purpose of a debt consolidation loan is not to get you out of debt – it is to help you better manage it.
The amount of debt that you are in is a significant factor to whether a consolidation loan is the right option for you. It may only be a short-term fix if you can’t then pay the repayments on your new consolidation loan. They should only be considered if it means you will end up paying less in fees and interest, as well as simplifying your financial arrangements such as timing the number of repayments.
When considering a consolidation loan, you should also consider the following options to get you back on the right financial track, as recommended by the Australian Security and Investment Commission (ASIC).
- Talk to your credit provider to see if you can change your repayments or extend your loan
- Consider switching home loans to see if you can save money in interest and fees
- Look into a credit card balance transfer
- Consider selling your home – if you’re really struggling, it’s better to sell on your terms than for the lender to sell it as a mortgagee sale.
Another option you may consider is debt mediation. This is when experienced mediators negotiate with your creditors to lower the amount of debt you owe, if you qualify for mediation. You may then be able to use a consolidation loan to pay out these reduced figures. To find out more about debt mediation, have a look at United Debt Assist.
It’s always advisable to be careful when making any financial decision, and a consolidation loan is probably one of the most important decisions you can make.
When considering a consolidation loan, avoid getting deeper into debt by applying for more credit than you really need. Look for a solutions-based lender who will look at your current circumstances and tailor a loan to suit your specific needs.
At LoanU, every loan approved has a personal touch. Our products are designed to put you in a better financial position and provide an end-to-end solution. If you’ve considered all options and have decided on a consolidation loan, you can check if you qualify before actually applying.
Check if you qualify for a loan with LoanU – without damaging your credit score by entering your details into our qualification calculator.