Between home loans, car loans, credit cards and personal loans, Australians are now living with more debt than ever.
On average, household debt is now equal to nearly 18 months annual salary. The interest rates you’ll pay on that debt can range from as little as 4-5% per year on your mortgage, up to a hefty 20+% per year on your credit cards.
When you take out loans to pay for large purchases, it's easy for the all the payments to add up. Before long, you could find yourself repaying multiple creditors each month, but what if there's a better way?
If you're wondering how to manage your debts more effectively, a debt consolidation loan might be worth looking into. It can be a great option because the lower the interest rate you’re paying, the quicker you’ll be able to get on top of your debts.
Here's everything you should know about these loans and some tips for deciding whether they could potentially help you to clear your debts quicker.
What are debt consolidation loans?
Put simply, a debt consolidation loan often lets you combine all your personal debts into a single personal loan so you’re left with just one repayment a month, and the aim is to shift this loan to the lowest interest rate possible. First, you use the funds from the loan to pay off all your debts, and then you repay the new loan by following the set repayment schedule. By only having to maintain repayments with one creditor, you avoid the hassle of having to make repayments to multiple financial institutions or loan accounts, therefore reducing some of the stress that can be associated with this.
Debt consolidation loans are a very attractive way to handle numerous debts, so long as you have the money to meet the repayments.