How to consolidate your debt
If you’re finding it hard to pay off your debts you’re not alone. According to the Australian Securities and Investments Commission (ASIC), more than one in six Australians are struggling with credit card debt.
However, there are solutions that can help make your repayments more manageable. One way to try and reduce your debt is to consolidate it.
What is debt consolidation?
Debt consolidation is simply combining all of your debts into one payment. Ideally, you’ll reduce your interest rate as well, allowing you to pay off your debts sooner and save money in the long run.
How does it work?
While debt consolidation solutions will vary depending on your situation, there are generally three standard solutions when it comes to managing your debts.
Take out a personal loan
One of the most popular forms of debt consolidation, a personal loan will take your credit card debts and combine them into one loan with just one simple payment.
- Why it works: You’ll have one simple payment for all of your debts, usually at a lower interest rate.
- What you need to consider: Review any exit and penalty fees that come along with paying your existing debts early as well as your new loan terms (it pays to calculate your interest over the life of the loan) to ensure they don’t outweigh the cost of your new loan.
Refinance your Mortgage
For those who own a home, mortgage refinancing allows you to roll your existing debt into your home loan.
- Why it works: This makes for a clean option for homeowners as it combines your mortgage payment with your debt payments, generally at a more favourable interest rate.
- What you need to consider: Mortgages have longer repayment terms so you may end up paying more interest on your debts over the life of the loan. Make sure to do the maths first before weighing up your options.
Open a balance transfer card
A balance transfer card* allows you to transfer the balance of one or multiple credit cards onto just the one card, generally at a much lower interest rate.
- Why it works: These cards generally have very low interest rates, making them easier to pay off.
- What you need to consider: While interest rates are quite low, they only last for a set amount of time. If you haven’t paid off your loan within this promotional period, you’ll be subject to a higher rate.
What to do before re-financing
- Talk to your creditors: Get in touch with your creditors first to see if they’re willing to negotiate better repayment terms with you.
- Review exit penalty fees and interest: Some loans and credit cards have exit and penalty fees, so you’ll want to make sure that you’re still coming out ahead even with these added fees. The same goes with interest, you’ll need to ensure that the new rate you are paying is still cheaper over the life of the loan.
- Check your credit score: Your credit score is used to determine your eligibility to borrow more money, so it’s important to make sure your credit report is accurate. If something is incorrect, you’ll have ample time to make any corrections before applying for new financing.
Once you’ve done your homework, you can decide the option most suited to your requirements. Start comparing so you can enjoy the benefits of one simple payment and lower interest rates now.
If you’re interested in learning more about mortgage refinancing or personal loans, we’re ready to help.
* G&C Mutual Bank does not currently offer balance transfer cards.
Any advice or information provided on this site is general advice only, and does not take into account your personal objectives, financial situation or needs. Before acting on any general advice you should consider its appropriateness given your personal circumstances. You should consider the Terms and Conditions for a product before acting on any advice to acquire it. Please consult with a financial adviser for personal financial advice.
