If you are in debt and finding it difficult to repay your monthly repayments then debt consolidation may be a solution for you. Fox Symes is the largest provider of Debt Solutions in Australia.
- What is debt consolidation?
- What debts can be consolidated?
- What are the benefits of debt consolidation?
- What types of debt consolidation loans are available?
- Will I be eligible for a debt consolidation loan?
- When should I consider debt consolidation?
- What should I do before applying for debt consolidation?
- How will debt consolidation affect my credit score?
- How will debt consolidation affect my credit cards?
- What are the drawbacks of debt consolidation?
- Is Debt Consolidation right for me?
- What are the alternatives to debt consolidation?
- What is the difference between Debt Consolidation Loans and Debt Agreement?
- I have equity in my home. Is it better for me to refinance my mortgage and consolidate debts?
- Should I apply a debt consolidation loan with my current bank?
- Can I simply do a balance transfer credit card rather than a debt consolidation loan? Which option is better?
- Can I get a debt consolidation loan if I have bad credit?
- What is Fox Symes and what do you offer?
What is debt consolidation?
Debt consolidation or refinancing is a way of taking multiple debts and consolidating them into a single loan, subject to a single interest rate generally with a single monthly repayment. Instead of having to manage repayments to multiple banks and financial institutions a debt consolidation loan allows you to deal with a single lender. This makes managing your debt situation significantly easier and often you can wind up paying less each month than you were paying before.
What debts can be consolidated?
Generally a debt consolidation loan allows you to consolidate all of your unsecured personal loans, credit cards and store cards. However some mortgage refinancing allows you to consolidate your unsecured debts in with your mortgage.
What are the benefits of debt consolidation?
Most debt consolidation loans should offer you a lower interest rate than you are receiving on your credit cards and personal loans. This reduced rate could ultimately save you thousands in interest over the course of the loan.
Additionally you will be able to deal with a single bank or financial institution rather than multiple different creditors. This should make your debts easier to manage and save you money on fees and late payments.
What types of debt consolidation loans are available?
Debt consolidation will come in the form of either an unsecured personal loan or a mortgage refinance loan, which allows you to refinance your current mortgage and combine your unsecured debts into the mortgage at the same time.
Will I be eligible for a debt consolidation loan?
Eligibility for a debt consolidation loan is at the discretion of the bank or lender. Generally speaking you are unlikely to be approved for a loan if you have a bad credit score, a history of late payments, are in default on any other loan repayments or are unemployed or not in regular employment. So if you fit one or more of the above criteria or your debt situation has gotten out of control you are unlikely to be eligible for a debt consolidation loan.
When a lender is judging your eligibility for a debt consolidation loan they will take your ability to service your current debts into consideration even if you intend to pay out those debts with the loan. For example if you have three credit cards with a balance of $10,000 each, you will need to prove you can service the minimum monthly repayments on those debts as well as the debt consolidation loan in order to receive approval.
When should I consider debt consolidation?
There are several situations that should warrant consideration for consolidating your debts.
- Are you struggling to make monthly payments because your debts are to close to your credit card limits?
- Do you have defaults on your credit report? Those with have defaults on their credit report may have a more difficult time qualifying for some types of debt consolidation loans. On the other hand those with a good credit report may be able to get an unsecured personal loan to pay down their debts with.
- Do you have an available credit card limit with a low interest rate? If you do, a balance transfer of higher interest rate credit cards or other debts onto the card will consolidate them into one payment each month.
- Do you have equity in your home? If you have equity, you may be able to borrow against the value of the home with a low interest rate secured loan. These funds can then be used to pay down all of your unsecured debts, personal loans or other debts you may have, creating one lower interest rate loan to pay each month.
- Do you have low interest rate credit cards and persona loans now? If you do, you may not qualify for any additionally lower interest rates. It may still make paying your debts easier to do by having one loan, but it may not save you anything unless you pay it off faster.
What should I do before applying for debt consolidation?
As with any significant financial commitment you should research the market before you apply for a debt consolidation loan. Before making an application with any one lender you should compare the interest rates and term lengths offered by different banks and institutions to see if the loan will help improve your financial situation. Remember a longer term loan could end up costing you more in the long run so it is important to check the term length of the loan as well as the interest rate. You should also check the credentials of the financial institution you are applying with to ensure they are a fully licensed and reputable organisation.
How will debt consolidation affect my credit score?
Generally debt consolidation will not immediately affect your credit score but should have a positive effect in the long run if you maintain a good repayment history. Debt consolidation should also make it easier to avoid payment defaults which do have a negative impact on your credit score. You should also bear in mind that applying for multiple loans and being rejected will have a negative impact on your credit score so you should only apply for credit if you are relatively certain of receiving approval for the loan.
How will debt consolidation affect my credit cards?
A debt consolidation loan will allow you to pay out the balance on all of your outstanding credit cards. However it will be up to you to cancel these credit cards once this has been done as most lenders will not do this for you. It is not uncommon for people to continue using their credit cards after they have received a debt consolidation loan and find themselves in even further debt. It is highly recommended that you cut up your credit cards once you have used a debt consolidation loan to pay out the balances.
What are the drawbacks of debt consolidation?
Some people who take out debt consolidation loans eventually find themselves in a worse position than they were in before. Why is this the case? Because debt consolidation doesn’t help change the behaviour that got them into debt trouble to begin with. After taking out a debt consolidation loan, many people who find their credit card balances cleared end up maxing out their credit cards and slipping back into the same bad spending habits as before. This can lead to a situation in which you not only have to repay the same amount of debt as before but also have to repay the debt consolidation loan on top of it.
If you get a home equity loan to use for debt consolidation and find yourself in financial trouble again your home could be at risk. Because the home is backing up the value of the money you borrowed, lenders can take the home from you if you default on the loan.
Without discipline and a change in your spending and saving habits, debt consolidation is not going to provide a long term solution to your problems and you may eventually find yourself slipping back into debt. Ultimately debt consolidation should be used in conjunction with better financial habits such as budgeting and saving if it is going to be truly effective and help the borrower to become debt free.
Is Debt Consolidation right for me?
This question depends on your personal situation. Debt consolidation is most appropriate when your debt situation hasn’t gotten completely out of control but is just starting to become unmanageable. Unfortunately many people do not get around to addressing their debt problems until it is too late. If you have an impaired credit score, payment defaults on your credit report and a history of late payment you are unlikely to be approved for a consolidation loan. Also unless you are ready to make a commitment to changing your spending habits and budgeting, a debt consolidation loan is likely to get you further into debt. If you are unsure if debt consolidation is appropriate for your situation you should seek professional advice.
You should look for these benefits in any debt consolidation option you consider.
- Does it lower the interest rate you are paying?
- Does it help you pay off your debts faster?
- Does it help you stay organized so you don't have to pay over the limit and late fees?
- Does it offer you a fixed rate?
- Can you qualify for this type of debt consolidation loan?
What are the alternatives to debt consolidation?
If your debt problems haven’t yet gotten completely out of hand and your repayments remain manageable, the best option is always budgeting and smarter management of your finances.
However if you have been rejected for a debt consolidation loan and your debts have become unmanageable there are alternatives for you to consider. An increasingly common option is entering into a debt agreement with your creditors. A debt agreement is a legally binding arrangement between you and your creditors based upon what you can reasonably afford to pay. Similar to debt consolidation they allow you to make a single ongoing repayment to your debt agreement administrator.
Finally in more extreme cases declaring bankruptcy might be the only option available to you. Bankruptcy should only be considered as a last resort and in situations in which you are unable to reach an agreement with your creditors.
What is the difference between Debt Consolidation Loans and Debt Agreement?
Both debt consolidation loans and debt agreement allow you to combine your unsecured debt into a single repayment plan however there are crucial differences between the two.
A debt consolidation loan is a loan which allows you to pay out your existing debts and instead repay a single loan with a single monthly repayment subject to a single interest rate.
Debt agreement on the other hand is a legally binding agreement between you and your creditors to repay your unsecured debts. However unlike debt consolidation all of your debts aren’t paid out upfront but instead your creditors receive dividend payments based upon your debt agreement contributions. Once you have successfully completed the agreement you are released from your debts. It is only possible to enter into a debt agreement if you have become insolvent, in other words you cannot afford to pay your debts as and when they fall due.
I have equity in my home. Is it better for me to refinance my mortgage and consolidate debts?
If you have equity in your property and are looking to consolidate your debts, refinancing your mortgage might be the best option for you. Many lenders allow you to consolidate your debts into your mortgage through refinancing.
The advantage of mortgage refinancing is that you will generally be able to receive a much better interest rate than on an unsecured personal loan. However you should be cautious as your debts will become combined with your mortgage and as with any mortgage, failure to repay the loan could result in the property being repossessed. You should also make sure you look into the fees and charges in the refinancing contract as these may be significant and wind up costing you more in the long run.
Should I apply a debt consolidation loan with my current bank?
If your current bank offers a debt consolidation loan it always worthwhile considering applying with them. If you have a good relationship with your bank and have demonstrated a good repayment history that bank may be more likely to approve your credit application. However before applying for a consolidation loan with your bank you should check the market first as there may be other lenders offering more competitive interest rates and terms on their consolidation loans. Additionally you will not be able to apply for a balance transfer credit card with your current bank as these are a promotional tool offered by banks to lure customers from their existing bank.
Can I simply do a balance transfer credit card rather than a debt consolidation loan? Which option is better?
One form of debt consolidation available is a balance transfer credit card. These allow you to transfer the balance of one or more credit cards to a new card generally with a 6 to 24 month interest free period.
These are only available if you are transferring your debt balance from one institute to another, for example if you have two credit cards with CBA you cannot transfer these balances to a CBA credit card but must use another bank such as NAB. You will also be subject to a one time balance transfer fee, typically between 1 to 2.5 per cent of the balance. These cards are ideal if you have a smaller debt balance and are able to payout the debt within the interest free period; if you fail to do this the interest rate will increase significantly and may end up costing you more.
If your debts are higher than $20,000 or you have non-credit card debts like personal loans a balance transfer credit card might not a viable option for you and you should look at alternative such as a personal loan, mortgage refinance, debt agreement or bankruptcy.
Can I get a debt consolidation loan if I have bad credit?
As with all forms of credit, lenders base your eligibility for a debt consolidation loan on your credit score and credit report. Generally speaking this means that most lenders will not approve you for a consolidation loan if you have a poor credit score or an impaired credit report. Before you apply for a debt consolidation loan it is worth obtaining your credit score and a copy of your credit report in order to judge your likelihood of being approved for the loan.
If you have multiple defaults and numerous credit applications lenders are unlikely to approve your application. If you have been rejected for a debt consolidation loan and are unable to reach an arrangement with your creditors you may need to consider other options such as a debt agreement or bankruptcy.
What is Fox Symes and what do you offer?
Fox Symes is the largest provider of debt solutions assisting over 100,000 Australians each year. Fox Symes has been featured on both A Current Affair and Today Tonight.
Fox Symes can offer you a range of debt solutions that can help you
- Consolidate your debts & loans into one easy monthly repayment
- Lower your Interest Rates
- Reduce your monthly Repayments
- Save Thousands in Interest
Right now, Fox Symes offers a free, no-obligation over the phone debt consultation to help you determine whether debt consolidation is an option for you.
If you want to find out more on how it works, view our debt consolidation case study.
Currently, you must own a property to qualify for a debt consolidation loan with Fox Symes. If you do not own a property, please contact us to discuss other debt solutions to eliminate debt. Solutions may include the below:
- an Informal Agreement
- a Mortgage Refinance
- a Debt Agreement
- a Personal Insolvency Agreement
- or as a last resort Bankruptcy
If you are in debt and want to know more about the solutions available to you contact us on 1300 098 127 or fill out the short contact form.