The Steps of Applying for Debt Consolidation Loans
Debt consolidation loans can help you reduce your debts and interest rates. If you have to pay more than one debt at the same time and you are struggling to balance your repayments, debt consolidation loans might be a good solution to create financial stability. Debt consolidation can be defined as gathering together all the credits into a single one. Typically, this can be realised through a personal loan that will help you reimburse all your existing debts. You will remain only with this new loan that you will have to repay every week, month, or at a set term.
What are the steps you need to take to apply for debt consolidation loans? In Australia, it is considered perfectly normal to manage a certain level of debt (for example for a car and house ownership), but if your credits get out of your hand and you find yourself struggling with multiple payments, it can be really stressful.
Multiple loans mean multiple payments, deadlines, different interest rates, and total chaos in your financial situation. Put everything together into one convenient, lower rate loan! Here’s what you need to do:
Step 1: Understand How Debt Consolidation Loans Work
Debt consolidation means repaying all the loans you have (credit cards, personal loans, store cards) by taking a brand new personal loan. Even if you still owe money, you will organise your finances and even reduce your monthly payments. Instead of making separate payments to multiple lenders every month, the debt consolidation loans will allow you to deal with only one loan provider.
Moreover, these types of loans usually are unsecured, meaning that the lender cannot claim your goods if you find yourself in the impossibility of repaying. However, that doesn’t mean you can casually forget about paying the loan. The lender can still recover the money through courts.
Step 2: What are the Pros and Cons of Debt Consolidation
Think about how the consolidation loan will benefit you:
- All your debts will be put together;
- You only need to make a single payment per month;
- Your credit rating could meliorate.
As with any other financial move, there are some disadvantages that you need to consider:
- There is the risk of having a higher interest rate than what you are used to;
- Keep an eye on the early repayment penalties. If you want to pay off a loan before the fixed deadline, some lenders will charge you a fee. Analyse attentively the terms and conditions of your deal.
Step 3: Analyse all your Debts
Take a pen and a piece of paper and make a list of how much debt you have.
- Put together all the loans you have to pay;
- Calculate how much you need to pay every month to maintain your debts on the surface. Include here fees, interest charges, break costs and compare them with the terms of the debts of consolidation loans you consider applying for;
- Add up the interest rates on all your debts from the beginning until the end of your repayments and compare them to the interest rates you are going to pay for the consolidation.
If the overall cost is lower than what you are paying at the moment, then a consolidation loan is what you’re looking for.
Step 4: Calculate How Much You Can Afford to Spend
There are a few aspects you need to consider before moving forward to applying for any debt consolidation loans:
- Calculate the total amount you earn every month. If your income differs from one month to another, base your decision on the lowest salary.
- Take out your debt payments (that will be consolidated later on) and calculate all your expenses.
- Make sure that your source of income is safe and stable.
- Make sure to put some money aside in the emergency fund for stressful situations.
Step 5: Explore your Options
It is essential to review all the terms and conditions. It might seem like a never-ending task, but it is better to be bored and safe than to consolidate your debt in an unsafe personal loan. You will most likely discover features of the loan that will directly influence the overall cost. You might find out that the consolidation plan will allow you to personalise the repayments depending on your salary, or to make extra payments without any additional charges. Give it a read.
Step 6: Learn to Prioritise
Now that you know exactly where you are at with your debt situation, you need to make a plan. A personal loan might be an advantage as it has a fixed term. This means that you are going to completely repay your loan during a strict period.
Depending on the loan you are applying for, you can focus on your obligations and you can make extra payments, occasionally. This will allow you to reduce the interest rate and get closer to the loan’s end date.
Do you find it difficult to manage all your debt? If debt consolidation loans are what you are looking for, contact us today and we will help you find a solution that suits your needs the best.