Debt consolidation loans

A debt consolidation loan is a way of unifying your debts, and simplifying your repayments while reducing your interest costs. Before applying with a lender, you need to have a close look at your new loan to make sure consolidating your debts will save you time and money.

A debt consolidation loan can be used to pay off other debt, like credit cards, other personal loans and store cards, and roll it into one easy-to-manage loan. This simplifies your debt, making it easier to repay with:

• One interest rate
  

• One regular repayment
  

• One set of fees
  

• One loan term
  

It’s ideal to secure a debt consolidation loan with lower interest rates and fees than your other debts, so that consolidating your debts saves you money as well as time.

If you are approved for a debt consolidation loan, you will receive cash in your account which will be used to repay your existing debts. In some cases, your new lender will contact your old lenders to settle the debts on your behalf.

Weighing up your options by comparing multiple personal loan offers from more than one lender is a simple way to ensure you’re getting the best deal for your personal circumstances. You can do that simply by using our smart-form.

To figure out whether a debt consolidation loan will save you money, it’s important to compare the total costs of both options — your existing loans, and your new loan.

You can consider three key factors:

• Interest rates — Generally, it’s only worthwhile refinancing your debts into a debt consolidation loan if the new loan has a lower interest rate. Always compare the interest rates of your current debt with your new loan options to make sure you’ll save money in repayments.
  

• Fees — Credit cards and some personal loans can have high fees. Find out what fees you’re paying on your other debts, and compare them to the fees of any debt consolidation loan you’re considering. Pay particular attention to late repayment fees, establishment or application fees, and early repayment or break fees.
  

• Simplicity — Consolidating your debt should make your life easier, not more difficult. Make sure that the new loan you’re switching to is easy to understand and simple to manage. That way you’ll be less likely to miss repayments.
  

It’s a good idea to work out the total cost of both keeping your current debts and refinancing with a debt consolidation loan — that way you’ll know for sure whether the change will save you money.

When comparing debt consolidation loans from multiple lenders, use the comparison rate to ensure you are accounting for all fees and potential charges. If you are using the Money.com.au smart-form to compare personalised loan offers and rates, the comparison rate will be listed clearly on the results screen.

Variable fees are not included in the comparison rate - such as late-payment fees - so be sure to keep these in mind when comparing deals. The four types of fees you should be aware of when comparing lenders for a debt consolidation loan include:

• Upfront costs - establishment fees and application fees
  

• Ongoing fees - annual fees and monthly fees
  

• Late payment fees - charged if you miss a payment
  

• Extra repayment fees - charged if you make early repayments to reduce the amount of interest payable on the principal amount.
  

Choosing a debt consolidation loan without any fees or penalties for early repayments may allow you to repay your loan earlier and save on interest, either by lowering your monthly repayments or keeping your payments at the same amount while reducing the term of your loan.

If you do not find any available offers to compare, you can work with a personal finance broker to assist in finding you a suitable deal and completing your application.

Brokers operate all across Australia — whether you need a debt consolidation loan in Adelaide, Newcastle, Sydney, Canberra, Brisbane, Melbourne, or Perth, you'll be able to find one who can help you assess a range of suitable options specific to your financial circumstances.

A debt consolidation loan could save you time and money, but they’re not right for everyone. Here are a few signs that you’d benefit from consolidating your debt:

1. You have several debts and struggle with repayments

If you’ve got multiple debts and find them difficult to manage, a debt consolidation loan could simplify things for you, making it easier to manage your debt and make consistent repayments.

2. The pros outweigh the cons

Never rush into a debt consolidation loan — weigh up the pros and cons before you commit. You should be 100% sure that the new loan is going to save you money and make your life easier before making the change.

3. Your existing debts have high interest rates

If you have loans, credit cards, and store cards with high interest rates, then consolidating them into a loan with a lower interest rate could save you money.

Debt can be expensive, especially high-interest rate credit cards and store cards, so it’s usually best to pay it off as quickly as you can without causing yourself financial stress. Your debt consolidation loan can be a great tool to help you do this if you:

• Set a budget — Create a realistic budget to manage your repayments and keep a close eye on your spending to make sure you can stick to it.
  

• Make extra repayments — Making extra repayments is a great way to pay your loan off faster and reduce the total amount of interest you pay, provided it doesn’t cause you financial stress.
  

• Choose the right loan and shop around — Don’t apply for the first loan you find or automatically go to your everyday bank. Shop around to find lower interest rates, fees and a better deal.
  

• Avoid getting back into debt — Once you’ve successfully settled all your debts, the last thing you should do is take on more debt. This may be a good time to close those overdrafts and cut up your credit cards.
  

In the example above, each separate loan comes with its own set of fees, which can add up. Each loan also has different repayment and settlement dates, which may be hard to keep track of, and may make it easier to miss repayments.

In this example, rolling all three loans into one debt consolidation loan makes paying off the debt easier by:

• Simplifying monthly repayments — one date to remember as opposed to three.
  

• Reducing monthly fees — from $50 to $0.
  

• Reducing monthly repayments — by $18.
  

• Paying the car loan off sooner — that’s one extra year of being debt-free.
  

• Reducing total loan cost — by $3,514.59.
  

The majority of lenders offer loans that are suitable for debt consolidation, and many offer products specifically for consolidating debt. You can apply for a debt consolidation loan in Australia if you are:

• Over the age of 18; and
  

• An Australian citizen or permanent resident; and
  

• Earn at least $25,000 per year; and
  

If you meet the basic eligibility for a personal loan, you will then need to compare lenders and assess their individual approval criteria.

To apply, you’ll need to gather all necessary documentation, and if you use our smart form and find a lender you want to apply with, you will be directed to the lender’s website and need to supply all documentation as you normally would when applying for a debt consolidation loan, which may include:

• Income and employment verification (employment contract, payslips, tax returns).
  

• Valid ID such as a passport or Australian driver licence or passport.
  

• Proof of address.
  

• Proof of ownership and value if you’re using an asset as security.
  

• Bank statements for up to three months as required.
  

• Proof of any other income you have.
  

• Proof of assets and liabilities.
  

Once you’ve got your documents ready, you can apply with most lenders online. Generally, the lender will release the funds to you once you're approved, and you’ll have to pay off each of your existing debts yourself.

Debt consolidation loans can be a great way to take control of separate debts and save money through making them easier to repay. When applying, make sure you choose a loan with features that suits your circumstances and makes paying your debt easier.

Paying your debt off faster and saving money may be easier if you secure a debt consolidation loan with certain useful features. These might include:

• No-fee extra repayments
  

• Flexible repayment frequency
  

• Redraw facility
  

However, these loans aren’t for everyone — you should compare fees, interest rates and loan features to make sure that securing a debt consolidation loan will save you money, not cost you more.