Even at the best of times life can be challenging, and things just happen that makes life that bit harder. Before you know it, things are out of control and you are using all your money just to pay off the credit card debts or personal loan. You feel overwhelmed, like you are in a rabbit hole going down slowly.
You roll your credit card into an interest free period, and before you know it, your debt has increased.
Then you find you can’t pay the minimum and you start getting calls from the banks or utility providers. That is the worst thing that could happen. Once a debt is registered against your name on your credit file, things get even harder as banks then won’t lend money to you.
It’s best to get ahead of that and start making some decisions to get your finances under control. That’s where debt consolidation comes in. This can be done either through a personal loan or an additional loan to your home loan.
We must stress, that unless you are prepared to take control of your money and your spending this is only a short-term fix. You must take responsibility for the situation you are currently in and make changes to get yourself back into the black.
Will you be better off consolidating your debts?
If you are struggling to manage your debts, it may sound like a good idea to roll them all into a loan. This may help you to better manage your repayments, but it may also make your situation worse if the interest rate or fees in the new loan are higher than they were with your original debts, or if you don’t get your spending under control.
How does debt consolidation work?
If you have three different credit cards with debts of, for example, $3,000, $4,000 and $7,500, you’re likely to also have three different interest rates and to be making three different repayments at different times each month.
This can feel overwhelming and complicate managing your cash flow. The interest rate on one card may be significantly higher than the others – and if the highest rate is on the card with the $7,500 debt, you could be paying plenty each month just to cover the interest, let alone paying down the debt itself.
One option you have to consolidate your debts is to take out a single personal loan or to put a smaller loan against your house (this will cost more than a personal loan as the term is 30 years as opposed to a personal loan with a higher rate of 7 years) to pay off each credit card and any outstanding interest. With this loan you’ll have just one repayment to make every week, fortnight or month– you can usually choose your own frequency of repayments.