While you’ve likely considered a car loan or a personal loan at one time or another, odds are that you haven’t investigated taking out a debt consolidation loan.
Recent research by SocietyOne into attitudes towards debt and credit indicates that 82% of Australians with personal or household debt have not taken out a debt consolidation loan of any kind, meaning that you certainly aren’t alone if it’s something you’re yet to explore.
What is a debt consolidation loan?
To put it simply, a debt consolidation loan is used as a way to combine several different lines of credit into a single loan.
These loans typically allow you to find a better interest rate, pay a single monthly repayment, and deal with only one creditor instead of several. They may also see you save on account fees in the long run.
Who’s most likely to suit a debt consolidation loan?
As a general rule of thumb, debt consolidation loans are better suited to people who use several lines of credit at one time.
These could be credit cards, car loans, personal loans, utility bills or a combination of them all.
According to Mark Jones, CEO of SocietyOne, “This type of debt management could be a good choice for people who have trouble keeping track of multiple loan repayments each month, simplifying the process and allowing them to focus on one single repayment instead”.
What could be the benefits of taking out a debt consolidation loan?
“Managing the repayments of multiple debts can be stressful and complicated, which is why using a personal loan to consolidate debt can help alleviate that stress and leave you feeling more in control of your finances.” Jones shared.
“Lenders like SocietyOne will offer a lower interest rate to customers who have a good credit profile, meaning you could save money while simply keeping track of only one repayment.”
The research also found that 64% of Australians who have taken out one of these loans have felt as though they were both in greater control of their finances, and in a better financial position.
So, if you’re finding it tricky to juggle your monthly payments, especially in this current financial climate, using a personal loan to consolidate debts could be the right choice for you.
Are there any risks involved?
Although there are plenty of benefits, it’s important to look for a lender that does not have hidden fees or conditions, and to assess whether a debt consolidation loan will suit your individual circumstances.
Affordability is key, so before you get started make sure to confirm that the loan will be cheaper to pay off than your existing debts.
In some cases, your current lenders may charge exit fees for paying off your loans early, which may see your initial expenses actually increase.
Doing the maths to ensure you will be able to cover repayments on your new loan will also keep you from incurring further unwanted debt.
It’s also important to ensure your assets are protected when looking to take out a new loan.
Some lenders may provide lower interest rates on single loans that are secured. Secured loans however, require you to put up an asset such as your home or car as security, putting you at risk of losing these if you were to default on your repayments.
“As with any kind of financial product, it’s important to weigh up both the pros and cons of any kind of debt consolidation loan before committing.”
Source: Insights used in this article were pulled from the Debt and Credit Poll commissioned by SocietyOne via NewsCorp/YouGov Feb 2020