Using debt consolidation as a tool to manage your debt

Posted on Monday, November 6, 2017 - 10:09

You might feel bleak as your credit card debt spirals out of control, especially if you have multiple cards, each with different interest rates. But to regain control there is debt consolidation which will combine your debt that allows you to make one monthly payment.

According to the Australian Securities and Investments Commission, Australians have around $32 billion in credit card debt alone, which calculates to about a debt of $4,200 per cardholder. There are some steps you can take to deal with your credit card debt by using debt consolidation. Debt consolidation is a solution where you can combine all your debt (such as store cards, credit cards and personal loans) into one loan, and one cheaper overall payment allowing you to take back control of your finances.

Calculate if debt consolidation is the right step for you

Debt consolidation might be a good option for some, but not everyone. So, before you apply you need to look at all the different fees, charges and discharged costs associated with settling on a new facility.

Depending on your debt and situation, debt consolidation might not be the best option for you. For instance, if you only have one credit card that has a high interest rate, then you could think about doing a credit card balance transfer. This is where you transfer your old card’s debt over to a new card and make use of the grace period. Doing this, you can make use of the 0% interest rate for a certain period. But do pay off your debt during that period.

There are different ways you can approach debt consolidation

One option would be through an unsecured personal loan. As a personal loan’s interest rate is normally much less than a credit card’s you will save on interest and it will be more manageable. For instance, the average interest rate for credit cards are around 15-20% according to Australian Securities and Investments Commission. Whereas a person loan’s interest rate will be between 8.5%-15.5%. Another benefit would be that personal loans have a defined lifespan. This means that you can pay off your debt over a defined period.

A second option would be to transfer your debt to your mortgage. To do that you need to have equity in your home. This by far is the best way to free up your monthly cash flow however be mindful that the debt you have consolidated will now be paid back over 30 years. Use it as way to get control of your finances today but then look towards paying lump sums back on your mortgage to get your home loan back on track also.

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