Your checklist for smart debt consolidation

Your checklist for smart debt consolidation

Debt can creep up on you. For some of us, debt build up when we’re young and a bit less organised with our money. Or sometimes it’s just a combination of a busy lifestyle, losing track of credit cards, store cards, interest free finance and other small debts. Before you know it, lots of little debt repayments add up to a big chunk out of your pay packet – and the interest is a killer.

Debt consolidation is about bundling your debts into one loan. It makes life easier with one simple repayment, and if you do it right, reduces the interest you’re paying (and building up) and gets rid of your debt sooner.

Know what you’re dealing with

Before you talk to the bank about consolidating your debt, understand what you're dealing with. Work through all your debts and add up how much you owe, how much you’re paying off per month, and how much of that is interest. It might be stressful to see the total, but it’s better to know and work on a plan to get out from under financial stress.

As you work through your debts:

  • look for quick wins – pay off any small debts you have the cash for
  • identify where you're paying the highest interest and focus repayments there while you work out a longer-term plan (it’s likely to be a credit card)
  • be realistic about how much you can afford to pay off your debt consolidation loan.

TIP: Don’t be tempted by a quick payday loan because you don’t want your bank knowing about your debts. You’re much better off dealing with your bank than risking spiraling into even worse debt with outrageous interest rates.

Your debt consolidation loan checklist

A debt consolidation loan is usually a personal loan that rolls all your debts into one, so you have one repayment to make, usually at a lower interest rate than credit card rates.

Your checklist to choose the debt consolidation loan to suit you:

  • The interest rate of the debt consolidation loan (including fees and costs) is lower than the debts you’re consolidating.
  • The repayments are realistic and achievable. You can always pay more off the loan, but over-committing because you’re keen to get rid of your debt can lead you straight back to debt issues.
  • The length of the loan makes financial sense. You might consolidate and be paying less each month than you were for individual debts, but if the lower interest rate is over a longer period, you might end up paying more in interest in the long term.
  • The bank or lender is reputable and explains interest rates and repayments.
  • You understand the terms of the new loan. If it's a loan secured against an asset, like your home or car, be clear on the risk.
  • If any of your debts have a penalty fee for paying them out early, check it’s worth it to save on interest in the long run.
  • Understand any application and legal fees involved in setting up a debt consolidation loan.
  • Just like any loan, you know what you’re signing. If a lender tries to rush you through the process and get your signature without explaining the loan, don't sign the agreement. They might not have your best interests at heart.
  • If you risk it with a loan through a debt consolidation company, check they’re licensed by the Australian Securities and Investment Commission (ASIC).
  • Close your debt accounts as soon as they’ve been paid out by the loan (or you might be tempted to start adding charges again).
  • You’ve borrowed what you need to repay your debts, no extra funds.
  • You have a budget set out including your debt consolidation repayment.

Get help

If you take a long look at your debts and can’t see a way out, financial counselling may help. Call Financial Counselling Australia on 1800 007 007 for free financial help.

Talk to us about smart debt consolidation

We want you to take back control of your money. If a debt consolidation loan sounds like the right solution for you, talk to QBANK about our competitive interest rates and easy payment options. Call 13 77 28.

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