Having multiple loans with varying interest rates from multiple lenders can negatively impact your finances and put your future at risk.
Paying a loan is a huge challenge, and it can be overwhelming to allocate earnings properly, especially when your debt continues to pile up in different forms. If you are struggling with multiple loans and wonder how you can cope, you may want to consider debt consolidation.
This blog post will explain debt consolidation, its benefits and how a finance broker can help you with the process.
What is debt consolidation?
Debt consolidation refers to combining all your various loans into a single loan. You use this new loan to pay off all the other ones so you can focus on repaying the new one.
Common loans that are consolidated are credit cards, student loans, home loans and personal debt.
People consolidate debt to try and secure a new loan with more affordable monthly payments and lower interest rates. For example, if you have:
- credit card debt that requires you to pay 4,000 AUD at 16% interest
- a car loan that costs $9,000 monthly with 21% interest
- payday loan amounting to $6,000 every month with a 15% interest rate
This can be difficult to keep up with because of differing monthly payments, interest rates and due dates. If you choose to consolidate these debts, you can focus on repaying one amount with a single interest rate and deal with only one lender.
Benefits of debt consolidation
Streamlined Repayment
It is stressful to track several loans with different due dates. You will feel pressured to think about your incoming salary and how you will divide it among your loans. When taking a debt consolidation loan, you will need to remember only one due date, amount, and loan company.
You can switch from fortnightly payments to a monthly arrangement, eventually speeding up repayment, depending on which is more convenient for you.
Lesser Fees
Good consolidation loans from reputable lenders will reduce the hefty annual fees usually included in credit card debts. When you consolidate, you will pay one relatively affordable administrative fee.
Better Cashflow Control
With a clear timeline, fixed amount and lower interest rate, you’ll be able to handle your finances better. Focusing on one debt will give you some breathing room in your budget, allowing you to save and allocate your money for other essentials you’ve had to sacrifice to pay off multiple debts.
Improve your Credit Score
When you have many debts with high interest rates, you might miss a payment, especially when a family emergency or any unexpected incident occurs.
We all know that late or missed payments will hurt your credit rating. So, it’s better to manage only one debt.
Indicators that you need a debt consolidation loan
Your debt is affecting your personal life
There are moments when we are affected by consecutive crises, and we turn to loans to help us cope with these expenses.
When these debts pile up, you are left with a huge amount that can affect your personal life, reducing the budget for groceries, medicine and rent.
You can get a lower interest rate with a consolidated loan
Reduced monthly payments with manageable interest rates will help you plan a better budget. This also eases the stress and strain you feel in trying to make ends meet because you prioritise your debt repayment.
Prevent legal problems from happening
When faced with personal challenges that cause delayed payments, the nonstop calls from lenders can escalate into legal action.
Applying for a debt consolidation loan can prevent your situation from becoming more complicated. This eliminates the hassle of paperwork and calls from debt collectors. As they say, nothing is more valuable than your peace of mind.
The Role of a Finance Broker in Debt Consolidation
Working with a finance broker to consolidate your debt means you have a trusted partner who can help you understand the complex elements involved in consolidating your loan, such as the debt-to-income ratio, creditworthiness, and credit history.
One of their primary contributions lies in providing expert advice tailored to individual financial circumstances. Drawing from their extensive knowledge of the lending market, they guide clients in assessing whether consolidation aligns with their goals.
Furthermore, they remove the burden of exhaustive research and comparison from clients. They pinpoint the most suitable solution by diligently analysing various options, saving considerable time and effort.
Additionally, they streamline the application, simplifying complex paperwork and ensuring compliance with all requirements. This approach speeds up the application and the probability of loan approval, thereby facilitating smoother progression towards debt consolidation.
Lastly, they provide support beyond the mere acquisition of a consolidation loan. They offer ongoing assistance, helping clients follow repayment schedules and giving guidance for future financial endeavours. This enduring support system reinforces the client-broker relationship and fosters financial stability in the long run.
Conclusion
Debt consolidation serves as a practical solution for individuals burdened by multiple loans, offering financial relief and stability. By combining various debts into a single, manageable loan, borrowers can streamline repayment, reduce fees, and gain better control over their cash flow.
Moreover, consolidating debt presents an opportunity to improve credit scores and avoid potential legal complications associated with missed payments. Recognising the indicators that signal the need for consolidation can empower individuals to take proactive steps towards securing their financial well-being.
The role of a finance broker is indispensable in this process. These professionals guide you from understanding the complexities of consolidating loans to facilitating the application process. They offer comprehensive support every step of the way.
Their ongoing assistance ensures clients secure a debt consolidation loan and receive guidance for long-term financial management, fostering a relationship built on trust and stability.
Ready to streamline your finances? Visit our Debt Consolidation Services page to learn how we can help you manage your debt more effectively and start your journey towards financial freedom today.
Sources
https://creditconcierge.com.au/debt-consolidation/
https://debtbusters.com.au/what-does-a-finance-broker-do/
https://wayforward.org.au/debt-information/debt-consolidation/
https://www.nerdwallet.com/au/personal-finance/debt-consolidation-what-it-is
https://www.nab.com.au/personal/life-moments/manage-money/manage-debt/benefits-debt-consolidation
https://www.commbank.com.au/articles/personal-loans/what-is-debt-consolidation.html