Are you struggling with debt?
According to official records, Australia’s personal debt is one of the highest in the world. The Australian Bureau of Statistics reported that mortgages account for 56.3 per cent of personal debt in Australia, followed by investor debt, personal debt, student debt and credit card debt.
So, it comes as no surprise that many Aussies want to break out of this vicious cycle. Rest assured, there is a light at the end of the tunnel, diminishing your debt isn’t an impossible purpose. In fact, debt consolidation could help you in this respect.
What Is Debt Consolidation?
To start with, debt consolidation implies taking out a new loan in order to pay off your outstanding debts. The ultimate purpose is managing to pay off your debt at a more convenient rate, or more favourable loan terms.
Evidently, debt consolidation loans are genuinely convenient for those who deal with multiple debts, receive numerous calls from collection agencies, have accounts with high monthly payments and high-interest rates, so on and so forth.
If you’re considering this option, then it’s time to find out more about the various types of debt consolidation loans.
Home Equity Loans
A home equity loan utilises the equity of your house as collateral. Notwithstanding, in order to choose this option, you should have a considerable amount of equity in your home and good credit history. The good part about this type of loan is that the interest rates are typically on the affordable side.
However, the main pitfall is that you place your home on the line for your debt. So, the minute the payments become unaffordable, you’ll deal with foreclosure in your home. To that end, it’s best to weigh the pros and cons before choosing home equity debt consolidation loans.
Secondly, you may also use a personal loan to consolidate your debt. Personal loans are unsecured loans featuring fixed payments that have to be made in a fixed timeframe. In other words, unlike home equity loans, these loans don’t require collateral. This could be a good thing; however, it also means that you might have to pay a higher interest rate since the lender cannot get hold of your assets if you don’t make the repayments on the loan.
What is more, your credit is also an important element in determining whether you get approved for a loan or not. Evidently, the better your credit score, the lower the interest rate you’ll get.
Credit Card Balance Transfers
If you choose a balance transfer, that implies transferring your credit card balances onto a singular credit card. The ideal scenario would be to benefit from a lower interest rate. Bear in mind, though, that, at times, low balance transfer interest rates are promotional, meaning that they are prone to expire after a given time. So, make sure you get informed on the matter so that you aren’t taken by surprise.
You should also consider that if you intend to use a credit card balance transfer as a debt consolidation loan, you’ll require a credit card with a high credit limit that will accommodate your existing debt.
However, as with any other financial option, there are drawbacks. One pitfall would be that placing too much debt one a singular credit card could have a detrimental influence on your credit score.
What Is the Purpose of the Loan?
If you know for sure that you want to apply for a debt consolidation loan, you should anticipate the effect it will have on your financial circumstances. Additionally, distinguishing between your needs and wishes is primordial. What is more, you should also analyse whether taking out a loan is your best bet or not. Perhaps you could focus on saving and keeping your expenses under control.
Also, before applying for debt consolidation loans, make sure you know your credit score. If your credit score is not the best, repairing it could help you get more convenient loan terms.
Even though debt consolidation loans might seem like a good option, you should know that going down this path doesn’t mean you’ll get rid of your debt overnight. What you’ll do is rearrange it a bit, so that it becomes slightly more affordable and easy to pay.
Remember that the key to breaking out of the vicious borrowing cycle is to promote discipline and steer clear of borrowing until you have made the repayments on your loan. Whenever you’re considering taking out debt consolidation loans, it’s best to use good judgment.
If you want to benefit from competitive, advantageous loan services on the Australian market enquire with us now.