Are you having trouble upgrading your car or paying for university because of debt? You’re not alone. The Australian Securities and Investing Commission claims that the total credit card debt in the country is over $32 billion. Hence, an average Aussie credit card holder owes around $4000 in debt.
Debt can happen to anyone, and millions of people worldwide pay higher bills and interest while tarnishing their credit scores. If you can’t avoid debt, the least you can do is better manage it. The best way to do that is by applying for a debt consolidation loan.
Let’s check out what debt consolidation is, its benefits, and everything you need to know before you apply for a debt consolidation loan.
Understanding Debt Consolidation
Debt consolidation is a smart solution for people with outstanding debt on more than one credit card. It simply turns all your debt into a single recurring payment, so you can pay everything you owe collectively. This not only improves debt management easier but also offers some other great benefits by transferring all your debt and payments onto one card:
Let’s check some other benefits of debt consolidation:
Lower Interest Rates
As your debt increases, so does the interest rate over time. By applying for a debt consolidation loan, you can merge all your high-interest debt accounts into one account with a collective interest rate and pay less in the long haul.
Improved Credit Score
Suppose you want to upgrade your vehicle but can’t due to a poor credit score. By consolidating your debt, you can increase your credit score with the lower collective interest rate and boost your chances of securing a loan. This might take a few months, in which you can continuously reduce your credit utilization ratio.
Clear Debt Faster
Lenders generally don’t care if you repay the loan amount in months, years, or decades since they’re earning interest. With debt consolidation, you can significantly shorten your payback period and save a lot of money in the long run.
Consolidating your debt into a single payment can help you relieve some of the stress associated with managing multiple payments. With reduced stress, you can make better financial decisions while leading a healthier life.
How to Apply for a Debt Consolidation Loan in Australia
Check Your Credit Report
If you’ve had one or more credit cards for several years, you should check your credit score to estimate your interest rate and repayment amount. Please note that Australia has three national credit reporting bodies – Experion, Equifax Australia, and Illion. Equifax Australia has a score range of 0 to 1200, while the other bodies score from 0 to 1000.
If you don’t require a debt consolidation loan right away, you can take some time to improve your credit score by:
- Clearing all late payments
- Checking for errors on your credit report
- Repaying minor debts, such as small credit card purchases
- Limiting credit utilization
Compile a List of All Debts and Pending Payments
Next, you should make a list of all debts you plan to consolidate, such as car payments, home loans, and store credit cards, etc. Once you have everything, add the total to get the loan amount you require to cover the collective debt.
Look for Loan Providers
There are plenty of lenders in Australia ready to offer a cash loan for you. Make sure you take your time and shop for the right loan, in terms of fees, interest rate, tenure, and terms & conditions. For instance, online lending companies cater to borrowers with all credit score ranges, meaning there’s a higher chance for people with bad credit to secure a loan. In contrast, banks and credit unions generally offer better rates and discounts, especially to borrowers with good or excellent credit scores.
Apply for the Loan
Once you’re ready to apply, you need to gather documents, such as:
- Proof of Identity (ID, Passport, Insurance Card, or Driver’s License)
- Proof of Address
- Proof of Income
- Payslips for the Last 3-6 Months
- Copy of Tax Returns
- Co-Signer’s Documents (In case you’re unable to solely meet the lender’s requirements)
Once you have everything, you can fill a debt consolidation form and compile your application. Make sure you carefully read the fine print before signing anything. Once your loan is approved, the lender will either offer direct payment to your creditors or deposit the amount in your bank account. In the next 30 days following the approval and transaction, you can make your first payment.
Nobody sets out to accumulate debt, but millions of Australians find themselves owing more than they can handle. This is where debt consolidation comes in handy to get you out of financial distress and help manage your payments collectively. If you’re still not sure about how debt consolidation loans work, you can speak with a financial advisor near you to guide you through the process.