Debt Consolidation - Everything You Need To Know
If you are in debt and finding it challenging 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?
Debt consolidation is a way of taking multiple unsecured debts and consolidating them into a single loan. Most often you are offered a lower interest rate generally with a single monthly repayment that could save you thousands in interest over the course of the loan. Instead of having to manage repayments to multiple banks and financial institutions, it allows you to deal with a single lender. By dealing with a single lender, it makes your debts easier to manage and save you money on fees and late payments
What debts can you consolidate?
Generally, you can consolidate credit card debt, store cards, personal loans, payday loans, medical bills, tax debt, utility bills, and any other loans.
What should I know about debt consolidation?
Some people who take out debt consolidation loans find themselves in a worse position than they were before. Debt consolidation doesn't help change the behaviour that got people into debt trouble. Without discipline and a change in spending and saving habits, it is not going to provide a long term solution. Ultimately debt consolidation should be used in conjunction with better financial habits if it is going to be truly useful and help the borrower to become debt-free.
Do consolidation loans hurt my credit score?
Generally, it will not give you a bad credit but should have a positive effect in the long run if you maintain a good repayment history. It should also make it easier to avoid payment defaults, which do hurt your credit score. You should also bear in mind that applying for multiple loans and being rejected will have a negative impact. So you should only apply for credit if you are relatively confident of receiving approval for the loan.
Will I get approved for a bad credit debt consolidation loan?
Eligibility is at the discretion of the bank or lender. Generally speaking, you are unlikely to be approved for debt consolidation if you have bad credit. A history of late payments and defaults, or being unemployed may also have an adverse effect.
When a lender is judging your eligibility, they will take your ability to service your current debts into consideration. Even if you intend to pay out those debts with the loan, you will need to prove you can service the minimum monthly repayments as well as the new loan.
Should I consider credit card debt consolidation?
Several situations should warrant consideration for consolidating your credit card debt.
- Are you struggling to make monthly payments because your debts are close to your credit card limits?
- Do you have defaults on your credit report? Those with defaults on their credit report may have a more difficult time qualifying for some types of consolidation loans. On the other hand, those with a good credit report may be able to get a personal loan to pay down their debts.
- 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 a home loan? If you have equity in your home, 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 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 personal loans now? If you do, you may not qualify for any additionally lower interest rates. It may still make paying your debts more comfortable to do by having one loan. But it may not save you anything unless you pay it off faster.
What is the best way to get out of debt?
This question depends on your situation. If your debts haven't yet gotten entirely out of hand and your repayments remain manageable, the best option is always budgeting and smarter management of your finances. A personal loan for debt consolidation may be appropriate, but you should only apply when you are ready to commit to changing your spending behaviour.
If you have been rejected for a loan to consolidate debt and your debts have become unmanageable, there are alternatives for you to consider. A good option is entering into a part 9 debt agreement with your creditors. Finally, in more extreme cases declaring bankruptcy might be the only option available to you. Bankruptcy is a last resort and in situations in which you are unable to reach an agreement with your creditors.
It would be best to 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 organised 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 loan?
What is the difference between a personal loan and a debt agreement?
They both allow you to combine your debt into a single repayment plan; however, there are crucial differences between the two.
A personal loan allows you to pay out your existing debts and instead repay a single loan with a single monthly repayment.
Debt agreement, on the other hand, is a legally binding agreement between you and your creditors to repay your debts. However, unlike debt consolidation, all of your debts aren't paid out upfront. Instead, your creditors receive dividend payments based upon your debt agreement contributions. Once you have completed the agreement, you are debt-free. It is only possible to enter into a debt agreement if you can't 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 a personal loan. However, be cautious as your debts will become combined with your mortgage. As with any mortgage, failure to repay the loan could result in your lender repossess the property. You should also make sure you look into the fees in the refinancing contract as these may be significant and wind up costing you more in the long run.
Can I do a balance transfer credit card instead? 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.
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 can pay off 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, it might not be a viable option for you.
Who 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 manageable monthly repayment
- Lower your Interest Rates
- Reduce your monthly Repayments
- Save Thousands in Interest
If you are in debt and want to know more about the solutions available to you contact us on 1300 098 127.
Why Choose Us?
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