Using debt consolidation as a tool to manage your debt

Last updated on November 25th, 2021
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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You might feel bleak as your credit card debt spirals out of control, especially if you have multiple cards, each with different interest rates. But to regain control there is debt consolidation which will combine your debt that allows you to make one monthly payment.

According to the Australian Securities and Investments Commission, Australians have around $32 billion in credit card debt alone, which calculates to about a debt of $4,200 per cardholder. There are some steps you can take to deal with your credit card debt by using debt consolidation. Debt consolidation is a solution where you can combine all your debt (such as store cards, credit cards and personal loans) into one loan, and one cheaper overall payment allowing you to take back control of your finances.

Calculate if debt consolidation is the right step for you

Debt consolidation might be a good option for some, but not everyone. So, before you apply you need to look at all the different fees, charges and discharged costs associated with settling on a new facility.

Depending on your debt and situation, debt consolidation might not be the best option for you. For instance, if you only have one credit card that has a high interest rate, then you could think about doing a credit card balance transfer. This is where you transfer your old card’s debt over to a new card and make use of the grace period. Doing this, you can make use of the 0% interest rate for a certain period. But do pay off your debt during that period.

There are different ways you can approach debt consolidation

One option would be through an unsecured personal loan. As a personal loan’s interest rate is normally much less than a credit card’s you will save on interest and it will be more manageable. For instance, the average interest rate for credit cards are around 15-20% according to Australian Securities and Investments Commission. Whereas a person loan’s interest rate will be between 8.5%-15.5%. Another benefit would be that personal loans have a defined lifespan. This means that you can pay off your debt over a defined period.

A second option would be to transfer your debt to your mortgage. To do that you need to have equity in your home. This by far is the best way to free up your monthly cash flow however be mindful that the debt you have consolidated will now be paid back over 30 years. Use it as way to get control of your finances today but then look towards paying lump sums back on your mortgage to get your home loan back on track also.

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The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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