Want to reduce your interest and fees? Here are all of your options to consolidate debt.
Debt consolidation is for when you have multiple debts, whether it be personal loans, credit cards or something else, and you want to reduce the interest you're paying. This guide will take you through your options to consolidate your debts – including options for if you have bad credit.
First, what debts do you want to consolidate (pick one)?
How does debt consolidation work?
Debt consolidation involves you taking out another credit account (loan, credit card or other) that combines your existing credit accounts into one. This helps to reduce the separate fees and interest you are paying. The debt consolidation product you take out may involve extending a credit account you already hold, such as your mortgage.
It's important to determine whether you can afford the repayments on a debt consolidation loan before you apply and if taking one out will put you in a better financial position rather than a worse one.
Questions to ask before consolidating your debt
- What are your current monthly repayments? To make sure the debt consolidation product you're applying for is helping you to pay less, not more, across your debts, you need to know how much you're paying. Pull up all of your bank statements or all of your separate bills for your credit accounts and see how much you pay each month.
- How much interest are you paying (and fees)? One benefit of debt consolidation is reducing what you're paying in interest and fees. Check your interest rates and fees for each of your accounts to ensure your new debt consolidation loan will be less.
- Will you be eligible? While there are a few benefits to debt consolidation loans, there is no certainty as to your eligibility. There is also no certainty as to whether you'll be approved for the full amount you need to cover your debts. Check the minimum eligibility criteria, your credit file and the minimum and maximum allowable limits for the debt consolidation product you want. If in doubt, ask the provider directly.
- Will an exit fee or penalty apply to any of your current credit accounts? Some personal loans may charge you a penalty to repay your loan early. If a fee does apply to your loan, you need to ensure you're still able to save with debt consolidation when you have to pay this fee.
- What is your credit like? Credit providers go through your credit file and can check your credit score to assess your risk and establish your capacity to repay credit. You can get a copy of your credit file for free. Order it and make sure the information is correct and that you have a good idea of your financial position.
- Is this a good time to get into more debt? If you don’t have a stable job, if you’re planning to take time off to study or to start a family, or if you have health problems that might lead to reduced income, applying for credit might not be such a good idea.
What happens if a provider rejects my application?
In the event that a provider rejects your application for credit, bear in mind that not all is lost. But before you apply for credit there are a few things you can do to improve your chances of being approved. For example, you can start by going through your credit file to ensure you are in a good financial position. If you're concerned about your application you could also work on reducing your debt for a period of time so you don't have to apply for as much. and then work on reducing debt by working on a budget.
If you are rejectedIf you are rejected then you should wait to apply again. Generally, if waiting between three and six months to apply with another provider will not be as risky as applying straight away. If you have series concerns about your debt you have Part 9 Debt Agreements (a form of bankruptcy) as a last resort.
Finding the right debt consolidation option for you
The best way to consolidate your debt will depend on a number of factors, including how much debt you have and your financial situation. It also depends on the type of debt you're trying to consolidate. The sections below will guide you through consolidating debt based on your debt type.
What type of debt do you want to consolidate?
How to consolidate personal loan debt
If you have personal loan debt and are looking to consolidate or refinance this debt in order to save interest and better manage your repayments, you have a few options available to you.
- Debt consolidation personal loan. This is one of the most common ways people choose to consolidate/refinance their personal loan debt. It simply involves taking out a new personal loan with a lower interest rate and fees than your current one and transferring your debt across. You'll need to ensure the personal loan allows debt consolidation and that it will allow you to borrow what you need.
- Balance transfer credit card. Currently, two credit card providers (Virgin Money and Citi) allow you to balance transfer personal loan debt. This allows you to take out a new credit card with a limit higher than your personal loan debt and transfer your debt onto the card. You'll then pay a promotional 0% p.a. rate for a limited period of time on the debt, after which a standard rate (usually above 20% p.a.) will apply. You should work out whether you can repay your debt within the promotional period before applying.
- Refinancing through your mortgage. If you have a mortgage you also have the option of consolidating your debt to repay it with this loan. However, keep in mind that while this option can seem cheaper due to the low rates home loans can offer, the loan terms can be up to 30 years. This can offset any savings earnt because of the rate, so make sure you sit down and do the maths before taking this option.
- Redraw facility enabled
- No early exit fees
- Borrow up to $55,000
100% confidential application
NAB Personal Loan Unsecured Fixed
NAB offers a fixed interest rate loan. Use your loan for a holiday, home improvement, a special project or even a wedding. It’s even a smart way to take control of your credit card debt.
- Interest rate from: 11.99% p.a.
- Comparison rate: 12.87% p.a.
- Interest rate type: Fixed
- Application fee: $150
- Minimum loan amount: $5,000
- Maximum loan amount: $55,000
0% p.a. for 15 months on balance transfers
with a one-time 1.5% balance transfer fee
Offer ends 31 March 2018
Eligibility criteria, terms and conditions, fees and charges apply
Citi Credit Card Offer
Pay a discounted annual fee for the first year, a low interest rate of 0% p.a. for 15 months on balance transfers and up to 55 interest free days on purchases with the Citi Rewards Classic Credit Card.
- $49 p.a. annual fee for the first year ($99 p.a. thereafter).
- 20.99% p.a. on purchases
- 0.00% p.a. for 15 months with 1.5% BT fee on balance transfers
- Cash advance rate of 21.74% p.a.
- Up to 55 days interest free
- Minimum income requirement of $25,000 p.a.
DISCLAIMER: This information is provided as is and does not take into account your current financial situation. You should always seek professional financial advice before applying for any form of finance.
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How to consolidate credit card debt
Credit card debt can get out of control quickly, especially as it's quite common for us to have two or more credit cards. If you want to take back control of your credit card debt you have a few options available.
- Balance transfer credit card. This is one of the most common methods of consolidating credit card debt. It involves you applying for a balance transfer credit card and transferring your existing card debt to that card. The debt you roll over will have a promotional rate (usually 0% p.a.) applied to it for a limited period of anywhere between three months to two years. After that time a revert rate (usually 20% p.a. or higher) will apply. It's up to you to make repayments to pay off your debt within the promotional period and avoid this revert rate.
- Debt consolidation personal loan. If you don't mind paying interest in exchange for a regular payment structure and longer payment terms, then a debt consolidation personal loan may be an option to consider. This involves you applying for a lump sum to cover your credit card debt and then using the funds to pay your card's balance off. By making regular repayments on the personal loan for the term you have selected you will pay off your debt.
Compare your consolidation options
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How to consolidate personal loan and credit card debt
If you have a range of debt you want to consolidate, such as personal loan and credit cards, you should first work out how much you're paying across your accounts. You also need to ensure you can exit your accounts without paying fees. Once you've done your due diligence you have a few options to consider.
- Debt consolidation personal loan. This type of loan allows you to borrow a lump sum which you can then use to pay off your credit accounts, credit card and personal loan or otherwise. As long as you apply and are approved for a sufficient amount, you can pay off whichever debts you choose. Just ensure the personal loan you're applying for allows for debt consolidation.
- Balance transfer credit card. Currently, two providers (Virgin Money and Citi) allow you to balance transfer debts from credit cards, personal loans and lines of credit. As long as you are approved for a high enough credit limit you can transfer debts from multiple accounts and take advantage of the promotional balance transfer rate on offer, which is usually 0% p.a. This rate can apply for as long as 24 months, after which a revert rate as high as 22% p.a. will apply to any unpaid balance.
- Mortgage refinancing. Those with home loans can also consider consolidating their debt into their existing mortgage. However, ensure your home loan lender will allow you to do this and calculate if this will actually save you money when the payments are spread out over your home loan term.
Compare your options to consolidate personal loan and credit card debt
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How to consolidate debt when you have bad credit
While your options are much more limited when you have bad credit, debt consolidation is still possible. When entering into bad credit debt consolidation, however, you need to consider the level of debt you have and how much you're struggling with it. That's because bad credit debt consolidation may involve entering into a Part 9 Debt Agreement, which is a form of bankruptcy. However, there are other options available, it just may involve a higher interest rate being applied to your loan to offset the risk you represent as a bad credit borrower.
- Part 9 Debt Agreement. A Part 9 Debt Agreement is an agreement between you, the lender and your creditors to pay a certain sum of money to your creditors. Once all parties agree, your debts will stop accruing interest, any civil actions are frozen and creditors can't pursue you. Keep in mind this agreement may result in you losing secured assets and you will have trouble accessing credit while you're repaying the amounts as per the agreement.
- Bad credit debt consolidation loan. This is an unsecured debt consolidation loan that is available to bad credit borrowers. It allows you to consolidate your debts, including credit cards and personal loans, and may allow you to save interest and fees. Keep in mind a higher interest rate will apply than with good credit debt consolidation loans as you represent more of a risk.
Fox Symes can help you take back control of large debts by consolidating what you owe.
Fill out this form to find out if you can benefit from:
- Reducing your repayments
- Saving interest
- A range of debt consolidation options
The good and the bad of consolidating debt
- Reduce the amount you pay in the long term. When you have several separate credit accounts that you're paying interest and fees for, the costs for these accounts can quickly start to accumulate. By rolling your debts into one account you eliminate the separate fees you're paying and are also likely to reduce the amount you're paying in interest. Over the long term, the savings can add up exponentially.
- Better-manage your repayments and credit accounts. Not only does having separate credit accounts cost you more, but having several different repayments is difficult to manage. A debt consolidation loan gives you one lender to deal with, one set of fees to keep in mind and one interest rate to remember.
- Stop the phone calls from your creditors. Are you worried every time you hear the phone ring? You can stop your creditors hassling you by getting your debt under control with consolidation.
- Avoid bankruptcy or serious bad credit listings on your file. If your debt is quickly spiralling out of control, a consolidation loan gives you a clear set path to paying it off. You might be able to avoid bankruptcy and you can avoid defaulting on your current debt by taking control.
What to be aware of
- Debt consolidation might not be the best way. Taking out a debt consolidation loan should only be done when you've decided it's the best option for you. Will you save money on interest and fees when you consolidate? Will this loan help you get in control of your debts? Or will this loan end up costing you more? Be sure to check out all the fees and charges before you apply for any loan.
- Not understanding what you're entering into. Make sure you ask questions of the provider before you take out a debt consolidation loan. What may be called a "debt consolidation solution" is actually a Part 9 Debt Agreement and involves you entering into a form of bankruptcy.
- High fees and rates charged for bad credit borrowers. Generally, loans available to bad credit borrowers carry higher rates and fees. Because of this, bad credit borrowers need to be especially wary when taking out one of these loans. Ensure that a debt consolidation loan is the best option for you before taking one on.
Debt collectors: What you need to know
Even though you have bad debts, you also still have rights. There are laws that control what debt collectors can and cannot do.
- They cannot excessively harass, threaten, or bully you and collectors are supposed to only contact you only during certain hours of the day. There are strict rules governing face to face encounters as well. Keep a log of the dates and times you are contacted along with any other specifics. This will come in handy if you end up having to file a complaint, which you can do by contacting a consumer protection agency such as the Australian Competition and Consumer Commission (ACCC).
- Check your bill records if collectors are calling you. Ask for a detailed statement of what they say you owe. If the debt involves a loan, ask for a copy of the paperwork. A collector must always identify himself and state the reason he is contacting you. He should be prepared to provide you with account information, and should offer a repayment or settlement plan.
- Figure out what you must spend to get by, such as food, shelter, car, utilities, etc. It is good practice to set up an appointment with a non-profit help debt counsellor before making any promises or commitments to a collector.
- Certain credit brokers and credit providers in Australia operate illegally without licenses, so make sure you’re dealing with a licensed individual or organisation. To check, you can go through ASIC Connect's Professional Registers or call ASIC's infoline.