Debt consolidation loan
Consolidate smaller debts and pay it off quicker using a personal loan.
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*WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 5 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
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Simplify and streamline your debt payments
Struggling to manage multiple debts? A Debt Consolidation loan could simplify your finances and help you pay them off sooner.
Consolidating debts reduces interest
It happens to all of us; our finances get more complicated when we take out credit cards, store credit, or personal loans to cover unexpected expenses. These may be short-term solutions, but will cost us more in the long run. Taking out a debt consolidation loan “rolls over” all your smaller debts into one loan product. This means reducing your overall interest burden and means you get out of debt quicker. It can also help you.
We shop your loan around to over 25 of Australia’s leading lenders and banks to ensure you get a fair deal.
Get on top of debt
According to credit reporting agency Veda, 600,000 Australians are at-risk for credit default. This may be due to juggling many credit products at once, and struggling to get ahead of it all.
Savvy understands your situation. That’s why your personal consultant will give you an honest assessment of your financial situation and tell you if a debt consolidation is right for you, accurately assessing your potential to reduce your interest rate payments and move forward with less debt and eventually, a cleaner credit history.
More on debt consolidation loans
Why would I consolidate my debts?
Put simply, a single loan is much easier to manage than multiple debts.
When you have multiple debts, you usually have to account for different repayment amounts and timings. This can make it difficult to plan your finances and increases the likelihood of a payment default. And, if you get behind on your payments, it can be very difficult to catch up.
Also, chances are that at least one of the debts will have a high interest rate. If you’re only making the minimum repayments on this debt, it will take a long time to clear. In the interim, you’ll be incurring a lot of extra interest and additional administration fees.
Being able to roll all your debts into one loan significantly simplifies your finances. It means you will only have one payment to budget for each month and one institution to deal with. This can take a lot of stress out of the situation and help you clear your debts quicker.
A debt consolidation loan could also save you money. As interest rates are usually lower than for other credit types, the total cost of the loan should be less. You can also choose your payment term and may be able to arrange a lower monthly repayment amount.
Would a debt consolidation loan work for me?
Everyone’s situation is unique and not all financial products are suitable for everyone. As such, it’s important to carefully consider your own circumstances and what will work best for you.
That being said, if you are currently repaying multiple debts, a debt consolidation loan could be a good option. It can make your repayments much easier to manage and save you a lot of stress. You may also be able to save on interest and arrange a more workable repayment amount.
To work out whether a debt consolidation loan might be right for you, ask yourself the following questions:
- Are you struggling to afford all your repayments? While individual repayments may be serviceable, multiple payments can add up quickly. However, consolidating your debts may allow you to arrange a more manageable monthly repayment scheme.
- Do you have to prioritise your debt repayments? If you are able to make additional repayments, it can be hard to choose which debt to clear first. However, consolidating your debts simplifies this and means you only have a single debt to repay.
- Are you worried about meeting all your loan repayment obligations? Juggling multiple debts can be time consuming and stressful. However, consolidating your debts rolls them all into one, making them much easier to manage.
- Do some of your debts have high interest rates? The higher the interest rate, the more you pay over the life of the debt. However, a debt consolidation loan will usually have a lower interest rate and could reduce the debt’s total cost.
- Do you feel like you’re not making any inroads into your debt repayments? When you have multiple debts, it can be hard to see the progress you’re making toward clearing them. However, a debt consolidation loan has a set term, and you will know how much you have left to pay.
If you said yes to one or more of these questions, consolidating your debts could be a good option.
What can I use a debt consolidation loan for?
As with any loan, when you apply for a debt consolidation loan, it will be recorded on your credit file. This will cause your credit score to dip slightly – at least in the short-term.
However, if you make your repayments in full and on time, the overall impact should be positive. Your credit report will show this good financial behaviour and your score will improve. Consolidating your debts will also help clear your oldest debts, which will also help lift your credit rating.
Also, if you are considering consolidating your debts, it’s likely your credit rating is already at risk. As such, the short-term impact of a credit application may be worth avoiding the long-term impact of a missed payment.
How can a debt consolidation loan help improve your financial health?
When you have multiple debts, each lender will charge you their own set of fees. You will also be subject to different interest rates and some will be higher than others. This can make it hard to chip away at your debt – and even harder to get back on track if you fall behind.
However, when you consolidate your debts, you have one repayment to make each month. And, as you are not paying fees to multiple lenders, more of your money goes to repaying down the loan. In addition to making it easier to track your progress, this can actually save you money in the long run.
To help explain this, here’s a worked example of a common debt consolidation scenario.
Repayments with multiple debts
| Debt | Amount Owing | Comparison Rate | Monthly Repayments | Term | Total Cost |
|---|---|---|---|---|---|
|
Personal Loan |
$7,500 |
9.41% |
$238.15 |
3 years |
$8,573.40 |
|
Car Loan |
$25,000 |
9.39% |
$512.79 |
5 years |
$30,767.58 |
|
Credit Card 1 |
$5,000 |
20.74% |
$128* |
24 years* |
$14,479 |
|
Credit Card 2 |
$7,500 |
13.99% |
$152* |
26 years* |
$16,846 |
|
TOTAL |
$45,000 |
|
$1,030.94 |
|
$70,665.98 |
Please note: Credit Card calculations are based on making the minimum repayment each month, which would decrease over time. They also assume no further debts incurred on the card during the payment period.
Repayments for a consolidated debt
| Debt | Amount Owing | Comparison Rate | Monthly Repayments | Term | Total Cost |
|---|---|---|---|---|---|
|
Consolidated Loan |
$45,000 |
9.41% |
$931.94 |
5 years |
$55,916.64 |
As this example shows, consolidating four debts into a single loan can save you a substantial amount in interest. It can also reduce your monthly repayments, making them easier to manage.
How Savvy can help you with your debt consolidation
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Your dedicated consultant
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Debt Consolidation v Balance Transfer
Can’t decide whether to consolidate your debt or transfer your balance? Here we explore the good and bad points of each approach.
Pros and cons of debt consolidation
PROS
Most providers will consider applicants with lower credit scores
Set monthly repayment amount (depending on type of consolidation loan)
Lower interest rate than many other credit types
Can positively impact your credit rating in the long-term
CONS
Can negatively impact your credit rating in the short-term
Potential fee for repaying debt early
Converting unsecured debts to a secured debt could put your assets at risk
Pros and cons of balance transfer
PROS
Often interest free for an initial period (e.g. 3 months)
Flexible repayments above minimum amount
No fee for repaying debt early
CONS
Can negatively impact your credit rating in the short-term
Higher interest rate if debt not settled during interest free period
Many lenders will charge a debt transfer fee of 1 – 3% of the balance
Most lenders only allow the transfer of one credit card balance, up to a set amount
Can continue to add to the debt during repayment period
Applying for a debt consolidation loan
The application process for a debt consolidation loan is a little different to other personal loans. Here’s what you will need to do.
Identify the debts you want to consolidate
The first thing you need to do is work out which debts you want to roll together. As part of this, you should consider:
- The amount owing on each debt: If a debt is too small, it may not be worth consolidating as it could incur extra interest. Generally, it’s best to keep these debts separate and pay them off independently.
- The interest rates for each debt: While debt consolidation loans usually have reasonably low interest rates, some credit types will have even lower rates. Generally, it’s best to keep these debts separate as consolidating them could increase the amount of interest you end up paying.
- The type of each debt: Most providers will only consolidate certain types of debt. Generally, any debts you do not have a formal contract for, you will not be able to consolidate.
Once you know which debts you want to consolidate, you can calculate how much you need to borrow.
Choose the best debt consolidation loan for your circumstances
Like with personal loans for other purposes, there are a number of different types of debt consolidation loans available. Depending on the loan provider, there are also a range of additional features you may require. Specifically, you should consider whether you want your debt consolidation loan to:
- Be fixed or variable: This refers to whether the interest rate is fixed for the life of the loan or varies with the market. Fixed loans have set repayments where variable loans offer more flexibility.
- Be secured or unsecured: This refers to whether you want to take the loan out against an asset you own (e.g. your car). Doing this could reduce the interest rate, but the asset could be repossessed if you fail to make your repayments.
- Allow additional payments: Some lenders charge a fee if you try to pay down your loan quicker. If this is something you might like to do, look for a loan with no early repayment fees.
- Allow you to redraw: Some lenders will allow you to get ahead on your repayments then, if required, reborrow the extra funds. If this is an option you would like to have, look for a loan with a redraw function.
- Be with a certain type of provider: Debt consolidation loans are offered by a number of different financial organisation types. Some will be better at in-person customer service (traditional banks), others will have lower interest rates (online lenders). When choosing a lender type, consider what services are most important to you and pick the institution that best suits.
The right loan type and features for you will depend on your circumstances and requirements.
Once you’ve worked out what you want from your debt consolidation loan, you should be able to shortlist suitable options. You can then pick the one that offers the best deal by looking at the interest rates and fees. The Comparison Rate can help with this as it takes into account the interest rate and most standard fees.
Apply for the loan
Once you have picked the best debt consolidation loan for you, you can submit your application. As part of this, you will need to provide:
- Proof of your age and citizenship status: You need to be over 18 and an Australian Citizen or Permanent Resident.
- Proof of your employment and income: You need to receive some form of regular income. Most lenders will have minimum income requirements and some will want you to be in stable employment.
- Proof of your ability to make repayments: You need to be able to show you can afford the repayments. Many lenders will also want to see a history of good financial behaviour (on time payments, no overdraws, etc.).
As part of processing your application, the lender will also look at your credit history. With this in mind, it’s worth checking your credit score before applying to make sure you meet the lender’s requirements.
Approval and funding
When you submit your application, the lender will review it and decide whether to finance your debt consolidation loan. In some cases, they may require further details to assess your creditworthiness and will ask you to provide further documentation. All going well, this will show that you meet their lending requirements and they will approve your application.
Once approved, the loan funds will be provided and you will be able to repay the consolidated debts. Some lenders will manage this process for you, liaising with the other credit providers to settle your accounts.
Make repayments as per your loan agreement
Once your other accounts have been settled, your debts will officially be consolidated. From then on, you will only have the one lender to deal with and one monthly payment to make.
Many lenders will set up a direct debit of your debt consolidation loan repayments. If this is not done automatically, consider setting up your own regular transfer to make sure payments aren’t missed. You should also revisit your budgeting to make sure you can meet your repayment each month.
Common questions about debt consolidation answered
Still not sure if a debt consolidation loan would work for you? Check out these frequently asked questions.
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Your helpful guides to debt consolidation personal loans
More informative guides about debt consolidation loans
Consolidation loans and personal loans
Debt consolidation loans are not a distinct product in the market – they are simply unsecured personal loans marketed to combining outstanding debts from various sources such as loans or credit cards and allowing you to manage the debt in one single product. You must use the loaned money to pay off the individual accounts and close them (saving you more money in annual fees, etc.) A debt consolidation loan can help you gain traction on your finances and improve your credit history in the process.
Is a consolidation loan right for me?
Though you may have heard of debt consolidation loans, you must look at your finances at a whole to find out if it is a good idea. If you are running behind in your debt repayments, you may be able to come to an arrangement with your creditors in order to give you more time or flexibility. You have to figure out if the fees and charges – especially early exit fees – are worth your while. You can talk to one of our consultants to figure out these figures for you, and expect honest advice in return. Remember to be upfront with us – we’re here to help!
Debt consolidation over balance transfer
When credit card providers offer balance transfers, often for zero interest over a certain period, it does look like a good buy, if you have a high-interest card with a big balance. However, if you’re not careful, it can leave you worse off. Most cards will only allow you to transfer one balance over, and cap the transfer at a proportion of your credit limit. So if you have three or four debts, it only solves one of your problems. Plus, you’re likely to pay a balance transfer fee of around 1-3%. A consolidation loan avoids all that as it combines many debts together, wiping them out, and letting you get on to pay back what’s owed over time for a lower overall interest rate.
Securities and consolidation loans
In some cases, personal loans such as debt consolidation loans can be tied to a security, or in other words, a high-value asset such as a car or a home. This can increase chances of approval and lower your offered interest rate. This seems good on paper, but exposes you to risks. If you default on your loan, your lender has the right to repossess the collateral to make up for lost payments. A secured loan could save you money, if you have a stable enough financial situation to fulfil the terms of your loan. If you are unsure, talk to a financial professional or consultant at Savvy, with no-obligation.
