Many Australians struggle when it comes to managing their debt. Finding an effective way to handle your debt is possible if you know your options. A personal loan is one of these options that you can use to consolidate your debt. We have compiled some handy tips that you can use when taking out a personal loan to avoid falling further into a debt spiral.
What is debt consolidation?
Debt consolidation means that you bundle up all your existing debt into one loan. The benefits of doing this are that you would be able to get one interest rate and also be able to manage your repayments, instead of dealing with multiple loans. It is important that you check the interest rate and fees that come with the new loan or you could find yourself in a worse position.
The do’s when using a personal loan to wipe away debt
Debt can pile up in many ways that can leave you stressed. But finding a way to handle your debt will count the most when it comes to moving forward. Personal loans can come in handy for people who want to better manage their finances and build their way out of debt. A few important things that you should consider is:
- Finding a low rate personal loan. There are plenty of personal loans on the market, but comparing and checking the interest rate can help you save in the process.
- Check your credit history. To effectively manage your debt, you will need to know how much you owe. A good way to start is to pay off the small amounts and eventually build your way to paying off your big loans so that you are not overwhelmed.
- Check out the fees and charges. This will make or break how you handle your new loan and whether it will be affordable for you in the long run.
- Keep track of your spending. How you spend influences how you manage your finances and stay out of debt. Knowing what goes in and out of your account will help you avoid the debt spiral.
What to avoid when using a personal loan to wipe away debt
These are some of the few mistakes people make when taking out a loan that could create more problems later. What to avoid when taking out a personal loan to wipe away debt is:
- Not calculating the interest. Just because a loan comes with a low interest rate doesn’t mean it will be affordable over the life of the loan. A personal loan calculator can show you the actual amount you will be paying over the loan’s term.
- Adding more debt. This might seem like a no-brainer, but adding more loans or financial commitments that can push you back to square one.
- Failing to check fees and charges. When looking for a personal loan it is important to check if there are any upfront fees or penalty fees that come with your loan. Not doing this earlier on can cause unnecessary financial strain.