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Taking out a loan is almost as normal in any person’s adult life as drinking water. From people in their early 20s to people well into their 50s, taking out a loan is a normal process that nobody really flinches at. But things do start to get alarming when multiple loans start to pile up. Suddenly you find yourself avoiding opening mail, getting stressed whenever you are reminded of your debts, and even going as far as skipping payment due dates. If you are in this situation, there might be a way to lessen the burden – debt consolidation loans.  

For people under a lot of stress and pressure right now because of multiple debts, getting out of the whole situation might seem very hard to imagine. There are many reasons people cling to debts, and we are not here to pass judgments on that. Instead, this article aims to present a solution you can take to have control over your finances. 

What are debt consolidation loans?  

Think of debt consolidation loans as refinancing scheme that aims to turn all your existing debts into a single one. Instead of having to juggle through multiple loans every month, you only need to worry about one loan with debt consolidation. Many banks and lending companies offer this option to make it easier for the lender to pay off their debts. But is it really a fool-proof way to get out of debt? Let’s start by enumerating its benefits first.  

1. Say Goodbye to Multiple Debts

One of the best things about getting debt consolidation loans is the freedom from the burden of having to pay off multiple loans every single month. You do not have to keep an elaborate ledger to keep track of all your payments as you only need to worry about one. This leads to better debt management, and eventually, better personal finances too.  

Be warned that this is not a be-all and end-all solution that can magically erase all your debts. You still have to pay all of them, of course. You can stop the anxiety of expecting the excruciating sight of mounting letters on your mail. Keeping up with multiple loans may also result in paying heftier interests in the long run. At least with a consolidated loan, you have a shot at getting lower interest rates over time.  

2.Enjoy Lower Interest Rates 

To expound further regarding the interest rates you will get: it will heavily depend on the type of debt consolidation loan. If you take an unsecured debt consolidation loan, for instance, you might have to brace yourself for a higher interest rate. The upside is that the payment terms are typically shorter. Although this is not the same across all lending agencies in Australia, it never hurts to anticipate this possibility. 

On the other hand, if you decide to go for a secured debt consolidation loan, you can enjoy fairly low interest rates since the bank or company will not carry too much risk. It does, however, put your secured property at risk (e.g., house, car, land, retirement fund). Be sure to measure the two sides of the coin before you make your choice. 

3. Increase Your Credit Score

If your credit score has suffered due to your debt history, you might be delighted to know that debt consolidation loans help improve your credit score. In Australia, comprehensive credit reporting is used to gauge how well you are managing your credit. Multiple debts, even when paid on time, does little to boost your credit score. 

However a debt consolidation loan paid diligently can help you score. You can still expect the occasional dip in your credit scores every time you acquire new credit, but it will eventually stabilise the longer you commit to your debt consolidation loan responsibilities 

4. Arrange Flexible Repayment Terms

This bit hugely depends on the type of lending agency you will be working with as well. If they offer limited loan arrangements, you might not be able to have as much flexibility as you should. Luckily, you will not have a hard time finding lending companies who are open to adjusting the repayment terms given that you have met their conditions.  

Most credit card balances go on for years before it is finally paid off. With debt consolidation however, you get to see how everything will pan out for you financially. If you make extra repayments you can pay your loan off quicker and save money. Again, the lending company you work with will play a huge part for this one, so choose wisely! 

5. Take the Pressure Off Your Shoulders 

We have listed quite a few of the practical benefits of having your debts consolidated into one single loan. Now, we are diving right into the psychological benefits. Not only will it free your mind from worry, but you will also feel lighter knowing that you don’t have to portion off your salary into multiple (and sometimes huge) chunks. 

It isn’t surprising to note that one of the biggest things that triggers stress and anxiety among over 79% of Australian adults is debt. Money matters like debts can take such a huge part of our lives, why not take a step back and opt for a smart debt consolidating solution?  

Other Things You Should Know:  

Debt consolidation might not be the best financial option for everyone. Nonetheless, here are some other things you need to know about this loan type before you sign the dotted line.  

Unsecured vs Secured Loans 

We have touched on this a while ago, but to reiterate, secured loans are loans that require personal assets like house, cars, boats, motorbikes or other items accepted by lender as collateral. You can consolidate your debts through secured loans but do keep in mind that you could be putting your assets at risk.  

Unsecured loans, on the other hand, do not require collateral. Most times you do need to have a fairly good credit score to be able to consolidate through unsecured loans. They also come with higher interest rate. There are some lending companies out there that do not necessarily adhere to these standards anymore, so do some digging online to find lending options that best fit your needs.  

Which one should you go for?  

If you are unsure about how you should handle your current debt situation, you should seek out the help of loan experts. They can offer you options so you can make an informed decision 

Need more insights? Get some assistance from a debt consolidation calculator or a loans specialist from Nu-Age Loans today.