Debt Consolidation Loan

If you are finding hard to pay the bills each month with debts building on your credit cards, car loan and other loans a low interest debt consolidation loan could be worth consideration to help you on the path back to a life without the stress of debt. Debt Consolidation loans are a type of personal loan which are designed specifically to help you save money on interest charges and fees whilst also simplifying how you manage your debts through the switch to one monthly payment, to cover all the required payments of your debts.

Our debt consolidation calculator featured below is designed to help you understand what your single monthly repayment would be for each of the low interest debt conolidation loan options being compared, to calaculate your monthly repayment simply enter the total amount of the debt you are loking to consolidate and then enter your preferred loan term. The "Monthly Repayment Column" will now show you the estimated monthly repayment for each of the featured debt consolidation loans, to rank the monthly loan repayment amounts simply click the column header.

Selecting the best* debt consolidation loan

 

The personal debt levels in Australia are at around $144 billion dollars of which around $32 billion is credit card debt, which equates to about $4,300 of debt per cardholder. Given the size of these debts it is not surprising that there are a vast array of debt consolidation products available, each claiming they can help you save money and make the management of your multiple debts easier through the switch to a single monthly payment. This guide has been developed to help you understand the debt consolidation loan options and provide some tips on how to select the best* loan that will help you better manage your debts.

 

1. Debt consolidation loans - loan types

Secured loan - By including an asset as security against this loan the lenders risk is reduced and will generally mean that the rate of interest and possibly the fees on the loan will be lower than the unsecured alternative. Lenders will consider a variety of assets as security, though the most common are vehicles and property.

The key point to be mindful of with these secured debt consolidation loans is that if you do run into difficulty keeping up with the repayments you run the risk of loosing the asset your secured the loan with as the lender has the contractual right to reposes the asset to settle any outstanding debts.

 

Unsecured loan - With no security attached to the loan the unsecured debt consolidation loan option tends to be more expensive in terms of interest rates and fees when compared to the secured option This is a popular choice with those who are consolidating debts who either have no assets to offer as security or simply unwilling to put their assets at risk.

 

2. Interest rates on debt consolidation loans

Fixed interest rate - As the rate is fixed for the full term of the loan your repayments will be the same each and every month, which can be handy when balancing your budget to make sure you cover all your expenses. The interest rates offered on fixed rate loans tend to be higher than those on variable rate loans, and the flexibility to make extra repayments and repay the loan out early or less prevalent and if they are available tend to incur a fee.

Variable rate - Variable rate debt consolidation loans tend to have lower interest rates than the fixed rate alternative, though the rate on these loans may move across the term of the loan, at the discretion of the lender. The flexibility to make extra repayments and repay the loan out early without high fees is a common feature of variable rate personal loans.

 

3. Options to pay off your loan faster

Any option that accelerates you toward a position of debt free is well worth consideration, even if you can’t see yourself making use of these options in the short term having them of part of your loan deal means they will be their for your use should your circumstances change and enable you to take advantage of them.

 

Extra repayments - making extra repayments over and above your standard repayments is an effective strategy, to further reduce your interest charges. This feature is can be found pre packaged with both variable and fixed rate debt consolidation loans, though it’s common for the use of this feature to attract a fee.

Repayment frequency - Pretty much all debt consolidation loans offer you the opportunity to select your preferred frequency of repayment so you can synch your repayments with your salary payment frequency. Some also offer the ability to choose the date of the month which enables you to set up a direct debit a couple days following your salary payment date ensuring your repayments are made each and every month on time.

 

4. What debts can I consolidate into a personal loan?

Debt consolidation loans are designed to aggregate the debt from a variety of sources and so make it easy for customers to bring together a disparate array of debts into a single unified loan. The most common form of debt that are consolidated into a personal loan are considered below:

Personal loans and Car Loans - These are one of the most common debts to be consolidated, where 1 or more personal loans are consolidated into a new debt consolidation loan offering a lower rate and fees.

Credit cards - Outstanding credit card balances attracting high interest rates are frequently included in debt consolidations to a personal loan offering a lower interest rate and reduced fees. Debt consolidation loans are also an alternative to balance transfers when the acceptance criteria for these low rate cards is proving prohibitive.

Store & charge cards - These cards often feature interest rates at the top end of the range so a transfer of any debts on these card types to a debt consolidation loan can reap some immediate savings.

 

Important information about this website

*Select the Best is one of Australia's leading credit card comparison websites. selectthebest.com.au offers compared on this page are from our participating providers. The Active Product List of products displayed on this site are not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms "Featured", "Best" and "Top" are not product ratings and are subject to our Terms and Conditions. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing products.

Frequently Asked Questions

What is a Debt Consolidation Loan?

A debt consolidation loan is a type of personal loan that is designed help you consolidate your credit cards, existing loans and other debts into one simple loan.

Is it easy to get approved for a Debt Consolidation Loan?

Assuming a debt consolidation loan is the most appropriate option for your circumstances, debt consolidation loans are not that easy to get.

A debt consolidation loan includes a certain amount of risk from a lenders perspective therefore credit providers are highly selective about who they offer these loans to. So if you have paid a credit card late in the recent passed, or have insufficient assets or too much debt compared to your income, or are self employed it’s unlikely you will be approved for a debt consolidation loan by a bank.

How can checking my Credit Report help me get a Debt Consolidation Loan?

Your credit report is a summary of your credit history for the last 7 years - it includes details of any applications for credit you have made  such as car loans, mortgages, personal loans, or credit cards. It also includes details of any debt consolidations, defaults on payments to the bank or to a creditor such as your gas or mobile phone provider and court judgements.

This file is accessed by lenders when they are considering your financial position and the report can have an adverse effect on any credit application you make. For instance, multiple applications for credit can be interpreted as a client in financial stress, resulting in your application being rejected.

It is really important that you check your credit file occasionally, particularly before applying for credit, so you know that the report is an accurate representation of your current financial circumstances.

You can attain a copy of your report from My Credit File It costs nothing if you are prepared to wait a couple of weeks, but you can also gain access very promptly for a fee. 

Can I get a free copy of my credit report?

Yes you can request a free copy of your Credit Report from My Credit File when:

  • Your credit application was declined. The request for a free credit file must be made within 90 days from the date your application was declined;
  • You have lodged a correction request and have been advised that information on your file has been corrected; or
  • You can request a copy of your free credit report once every 12 months.