Feel like your multiple debts have gotten a little messy lately? Well, it might be time for a spring cleaning!
Managing multiple debts can be tricky, from paying off a car or a personal loan to paying off your credit card. But this is where a debt consolidation loan can make life a little easier (and probably cheaper!).
But are debt consolidation loans really that popular? To put it simply, yes they are.
According to online personal loan lender SocietyOne, about half (50%) of their loans taken out each month are for debt consolidation, with the average loan being around $ 20,000.
SocietyOne Marketing Director Nicole Avery explains how it all works.
âLet’s say you have a credit card (or a few of them), bank cards, and maybe an existing car or personal loan. Not only does it take a lot of time and effort to make sure you pay it all off on time, but you could also be paying a lot of interest on each debt, âshe says.
âDebt Consolidation Loans are used to transfer all of that debt into one easy to manage payment. Not only could this save you a lot of administration time, it could save you thousands in interest and help you pay off your debts sooner.
Want to Compare Debt Consolidation Loans Now? Check out these best options …
How Much Could I Save With A Debt Consolidation Loan?
It depends on a number of factors like your current debt, interest rates, repayments, etc.
Mozo banking expert Peter Marshall says that by consolidating debt, consumers could end up drastically reducing the amount of interest they pay.
âThe truth is that credit card rates have remained high over the years, and although personal and auto loan rates have declined slightly, if you pay off a longer loan, you might not get a loan. competitive rate, âhe said.
âMore and more Australian personal lenders are now offering debt consolidation loans. By opting for a low rate debt consolidation loan, borrowers might end up paying less interest over the life of the loan than paying off their debts separately. ”
Currently on the Mozo database, the average interest rates on personal debt products are as follows:
- Credit card: 16.88%
- Personal loan without guarantee: 9.74%
- Secure personal loan: 7.25%
- New car loan: 6.14%
- Used car loan: 6.64%
So with that in mind, let’s take a look at this scenario …
Say you have $ 20,000 in debt. You owe $ 12,000 on an unsecured personal loan with an interest rate of 10% and $ 8,000 on two credit cards ($ 5,000 at 20.00% and $ 3,000 at 12%).
Right now, you would pay $ 674 in interest each month on the separate and three-year repayments, which would add up to $ 4,191 in interest.
However, if you opted for a three-year unsecured debt consolidation loan with an 8% interest rate, your one-time repayment would end up costing you $ 632 in interest each month. Over the life of the loan, you will end up paying $ 2,762 in interest, which is $ 1,429 less than if you kept your repayments separate.
And if you land a consolidation loan with a lower and lower rate, you could end up saving even more.
âSaving on interest can be the difference between keeping hundreds or even thousands of dollars in your pocket rather than in the hands of a lender,â says Marshall.
âIn addition to a low interest rate, it’s important that consumers remember to weigh things like annual or monthly fees, as well as repayment features that can help them pay off their debt sooner. , which could save them even more in interest payments.
Will a debt consolidation loan have an impact on my credit rating?
Like any other type of loan, such as a personal loan or a credit card, a debt consolidation loan can have an impact on your credit score. But whether it is positive or negative is up to you and how you pay back what you owe.
âWhen you apply for any type of credit, the lender will most likely check your credit rating as part of the credit assessment process,â says Avery.
âThis may initially lower your credit score, but as long as you keep control of your regular repayments, you’ll find that your score can actually improve over time, especially if you don’t apply for additional credit before. the debt is not repaid. “
It is therefore crucial that you always make paying off your debts a priority when it comes to your finances. By doing this, not only will you improve your credit rating, but you will also increase your chances of getting approved or getting a lower rate later on.
Want to learn more about debt consolidation? Visit our Debt Consolidation Center for more information and more top lenders!
^ See information on the Mozo Experts Choice Personal Loan Awards
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