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Debt Consolidation in Australia

Debt consolidation (or refinancing) involves very common debts like credit cards, mortgages, student loans, etc. The most common of these is credit card debt and it is also often the most troublesome one since it usually carries a very prohibitive rate of interest usually nearing 20% p.a.

Debt consolidation has become popular in Australia since Australia has always been known for its high-interest credit cards. An Australian holding two or three credit cards being charged at about 20% p.a., would only be happy to manage and consolidate his owing at a 7-10% interest-bearing debt consolidation loan. Not only, would he would save a lot of money in the process, but he will also have lesser monthly payments to bother about. Debt consolidation has also grown in popularity due to the convenience of making one payment rather than many, which can be arranged to be weekly, fortnightly, or monthly.

Debt consolidation can be used with practically every type of loan accessible in Australia today. It is becoming more common as the number of lenders increases. Australians with higher-interest loans are replacing them with lower-interest loans, also thanks to a highly competitive sector, which features products with very competitive interest rates.

The benefits of debt consolidation have been widely known, particularly in relation to:

  • Negotiating with creditors to pay less;
  • Obtaining a Loan for Debt Consolidation;
  • Going over the debt agreement with a magnifying lens, in case of difficulties.

Debt Consolidation loans are offered in Australia in a variety of forms and are broadly classed according to their purposes. Debt consolidation, mortgage consolidation, and bill consolidation are the three options. A typical debt consolidation loan is used to pay off personal debts such as personal loans and credit cards, as the kinds indicate. A mortgage consolidation loan combines all of your housing debts into a single loan, decreasing mortgage payments and providing the flexibility of a negotiated and single payment. Bill consolidation, on the other hand, is a loan that combines all past-due payments into a single loan and, once again, provides the option of negotiated and lower payouts.

Before choosing a debt consolidation loan, do your calculations and look around for the best debt consolidation loan and possibilities available. Various lenders occasionally offer various perks. It is up to you to figure out how to use them to your advantage.

Understand the risks and ensure that you actually will save money

Debt consolidation can help you manage your repayments more easily. However, if the interest rate or fees (or both) are higher than previously, it may cost you extra. You may also find up in deeper debt if you obtain more credit, as it may tempt you to spend more.

Before deciding to consolidate or refinance, examine the following factors.

1. Companies that offer unrealistic promises should be avoided

Some businesses advertise that they can get you out of debt regardless of how much you owe. This is implausible.

Don’t put your trust in a corporation that:

  • is not authorized
  • requires you to sign blank forms,
  • refuses to discuss repayments,
  • rushes the process,
  • does not put all loan expenses and interest rates in writing before you sign,
  • arranges a business loan when all you need is a basic consumer loan

TODO: Check ASIC’s website to see if the company is licensed. When searching, select ‘Credit Licensee’ or ‘Credit Representative’ from the drop-down option. Deal only with a licensed credit repair or debt management firm.

2. Make certain that you will be paying less

Compare the new loan’s interest rate, as well as the fees and other charges, to your present debts. Make certain that you can afford the new payments.

It may not be worth it if the new loan is more expensive than your present one.

Compare the interest and costs on a new loan with your current loans using the mortgage switching calculator

Remember to factor in other fees such as:

  • Early repayment penalties,
  • Application expenses, legal fees, valuation fees, and stamp duty – all fees that some lenders may levy if your new loan is secured by your home or other assets.

Switching to a longer-term loan should be avoided. Although the interest rate is lower, you may end up paying more in interest and fees in the long term.

3. Safeguard your home or other valuables

You may want to explore consolidating your unsecured loans to achieve a cheaper interest rate (for example, credit cards or personal loans) into a single secured debt. You put up an asset (such as your home or vehicle) as security for a secured debt. This implies that if you are unable to repay the new loan, the property or vehicle you put up as collateral may be at risk. The lender can sell it to recoup the loan amount.

Thus, before utilizing your home or other assets as security, consider all of your other options.

4. What other options do you have?

Before you pay a debt consolidation or refinancing company:

Speak with your mortgage provider – If you’re having trouble making your mortgage payments, contact your mortgage provider (lender) as soon as possible. All lenders have initiatives to assist you in difficult circumstances. Inquire with their hardship team about a hardship variation. They may be able to adjust the term of your loan, as well as reduce or suspend your repayments for a period of time.

Consider switching mortgages – A different mortgage may save you money on interest and fees. However, make certain that it truly is a superior deal.

Contact your credit providers – If you owe money on credit cards or other loans, ask your lender if you may alter your payments or extend your loan. The National Debt Helpline website contains help in negotiating payment terms.

Consider transferring your credit card balance – A balance transfer could help you get on top of your debts. However, it has the potential to exacerbate existing issues. To make an informed decision, look into credit card balance transfers.

Get free professional assistance – There is free assistance available to assist you in getting back on track. Financial advisors can assist you in developing a strategy and negotiating with your mortgage or credit provider. Moreover, throughout Australia, community legal centers and Legal Aid offices provide free legal advice. If you are facing legal action, you should notify them right away.

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