If you are in debt a consolidation loan may be an option to help you reduce your debt. What is a debt consolidation loan and how does it work?
A debt consolidation loan is the replacement of multiple loans and debts, such as credit cards and unsecured personal loans, with a single personal loan.
A consolidation loan means you only have to make one payment instead of making numerous payments.
With a consolidation loan, you may end up with a lower monthly payment and a longer repayment period. This can help some people to manage their finances more effectively.
Example of how a consolidation loan may work
You may currently have two or more personal loans or credit cards with outstanding balances totalling $8,000. The minimum repayment for all these debts is around $350 per month.
By consolidating all these debts into a single loan over a longer term of say 5 years, the amount you may have to repay could be reduced to less than $180 per month.
How often can I make repayments on a debt consolidation loan?
With a debt consolidation loan, you can normally make payments either weekly, fortnightly or monthly. The length of the debt consolidation loan can be set for a repayment which meets your needs.
You may be able to choose between 12 months and 7 years depending on the purpose and the amount of your consolidation loan.
What is the difference between a Variable or Fixed interest rate loan?
A variable rate debt consolidation loan gives you the flexibility of making extra repayments at any time and at no extra cost.
A fixed rate debt consolidation loan means your repayments are fixed for the term of the loan.
Do I need security for my debt consolidation loan?
Normally a debt consolidation loan is an unsecured loan, so generally, no security is required.
What fees will I need to pay for my loan?
Most debt consolidation loans have no ongoing fees and no early repayment fees. An establishment fee may be payable.
When applying for a debt consolidation loan
When applying for a debt consolidation loan you need to be careful and to be fully informed. Make sure:
You fully understand what you are doing The solution will be of real benefit to you and not just a short term fix You have achieved control over your debts Your repayments will be reduced and not increased You are fully informed of the consequences of the steps you are taking There are no hidden costs You are better off as a result of the solution you have chosen.