Is a debt consolidation loan right for you?
If you have several debts such as credit cards, store cards or other loans, you could benefit from consolidating these debts into a single loan. But make sure you do your research first to make sure debt consolidation is right for you.
What is debt consolidation?
Debt consolidation means you add up all your different debts, and get one loan to pay them off. This can give you better control of your finances, with just one loan, and one repayment to manage. It could also mean saving on overall interest charges and fees.
Say for example you have debts totalling $15,000 consisting of:
- $3,000 owing on your credit card
- $2,000 owing on a store card
- $10,000 owing on a car loan
This means that you have three different repayments to make, each with,a different interest rate, and possibly three different fees to pay; not to mention multiple bills and statements to keep track of.
Consolidating these three debts into one loan means there’s only one repayment amount, one interest rate, and one set of loan fees. You’ll also be able to look at a repayment schedule so you can see how long it will take you to pay off.
Is debt consolidation right for me?
If your goal is to pay off all your debts sooner and pay less interest overall, then a debt consolidation loan could be a good option.
Have a look at the different debts you currently have. It might be a car loan, a department store card, credit card or other loan. Credit cards can have high
interest rates, and if you’re only making the minimum payment each month, it could take you a long time to pay it off completely.
To help you work out whether you can benefit from a debt consolidation loan, use a debt consolidation calculator. You just need to enter the debt amount, current interest rate and the monthly repayments you make for each debt; so grab your most recent statements to have these details ready. The calculator results will show you your current debt situation compared to a debt consolidation solution.
- See how much your new loan repayment will be over different loan terms (periods) with this personal loan repayment calculator .
- Make a list of your current debts, look at your repayments, and calculate how much interest you’ll pay over the total loan.
- Do your homework and check out several lenders’ debt consolidation personal loan offerings, then use the loan comparison tool .
- Compare a debt consolidation loan to the calculations you made on your current loans and debts.
- If you need to work out a weekly, monthly or annual budget, have a look at our budgeting guide .
- Try to make extra payments when you can afford them to help pay off the total loan. But first, make sure the lender allows additional payments without charge
Debt consolidation should make it easier to manage your debts, reduce the amount of fees and interest you pay, as well as helping you pay off the loan sooner.
Let us know what’s worked for you, or ask us your questions below.Source: learn.nab.com.au