Combining your debts into one new loan can help you take control of your finances.
There are many ways to consolidate your debt, including balance transfers, personal loans and home equity. All offer their own benefits and have their own risks, but ultimately get you to the same goal of one easy low-interest repayment.
Virgin Credit Card Balance Transfer Offer
Enjoy a long term balance transfer offer of 0% for 18 months.
- $64 p.a. annual fee for the first year ($129 p.a. thereafter) annual fee
- 20.74% p.a. on purchases
- 0% p.a. for 18 months on balance transfers
- Cash Advance Rate of 20.99% p.a.
- Up to 44 days interest free
- Minimum Income Requirement of $35,000 p.a.
Repay your debt interest free with a balance transfer
Rates last updated August 25th, 2016.
- NAB Low Rate Credit Card
Balance transfer and purchase rate offers have been extended until 2 October 2016.
August 9th, 2016
- Virgin No Annual Fee Credit Card
Balance transfer offer has been extended to 30 September 2016.
August 25th, 2016
- Virgin Australia Velocity Flyer Card - 0% Interest Offer
0% purchase and balance transfer offers extended until 30 September 2016.
August 25th, 2016
Debt consolidation with a personal loan
Overview of debt consolidation and repayments:
There are several ways with which you can consolidate your debts and we will look at them in this article. By understanding how debt consolidation works you will be able to make an informed decision about your financial future.
Credit card balance transfers
Credit card balance transfers allow you to choose a reduced interest rate credit card for periods of 6-months up to 24 months.
Just bear in mind that this is really only an option if you intend to pay off the card within the honeymoon period, otherwise you’ll end up paying hefty interest rates which will increase your debt.
As mentioned frequently among creditcardfinder.com.au articles and guides, balance transfers are the epitome of cheap and effective debt consolidation.
There are plenty more balance transfer cards on offer which you can compare. If you’re unfamiliar with the balance transfer concept, or want to find out how you can avoid common pitfalls and ‘traps’ associated with them, see our balance transfer guide.
Since a personal loan can be fixed at a rate of around 13%, you may want to transfer your higher credit card debts into your personal loan and repay at it’s own rate. Contact your financial provider to find out if balance transfers are available on your personal loan. Compare the best personal loans if you’re interested in pursuing this method*.
Home equity is also another strategy to pay back your existing debt. Provided you already have equity in your home, you could apply for an equity line rate loan which will draw money against your ‘equity’ (the portion of your home that has been paid off by you.)Back to top
How does debt consolidation work?
One type of debt consolidation option is the personal loan. This is when you transfer your debts into one personal loan from a financial provider. Personal loans usually have lower interest rates than credit cards, making this option more appealing to people looking to lower their payments. If this option sounds right for you, contact a lender to talk about a personal loan that will suit your needs.
Debt consolidation can also be done through balance transfers. This is a type of consolidation where you can move the high balance of a credit card to another credit card that has a lower interest rate. This will help with your repayments by clearing the balance of one card without paying the high interest rates on it. With balance transfers, you must pay off the balance within a set period in order to take advantage of the lower rate.
By choosing either a personal loan consolidation or a balance transfer, you could eliminate the though the receiving multiple bills. You could also benefit from a lower interest rate to help your overall finances and your credit score.
When considering any type of debt consolidation it’s smart to evaluate all of your options. Compare interest rates, pay periods and any conditions that may be present. There are also financial advisers who can help you understand the ins and outs of debt consolidation.Back to top
Basic knowledge you need to possess if you are to have a fighting chance of getting out of debt
Anyone in debt needs to become an expert on the subject pretty quickly. No matter how lax you may have been previously with your finances, you should make sure you know every available option, where to turn, and who to speak to.
- How you got into debt in the first place. This may give you some clues how to get out of it, and should certainly help you avoid it happening again. It may have happened for personal reasons, business reasons, or bad financial planning.
- What exactly is your financial situation? You need to know what your income, expenditure and assets are to the dollar. Without this information, you won’t where your money is going in and out.
- Create a budget based on the above information. This will help you plan ahead to live the most frugal life possible until your debt issue is resolved. You will need to cut back, and maybe realise some assets or increase your employment workload.
- Are you eligible for any government assistance? Depending on your situation, you may be able to get some help from the government. Information is available through the Centrelink website. finder.com.au also has information about the age pension, and how to get a loan if you receive Centrelink benefits.
- Are your lenders willing to help? Don’t be shy about speaking to your lenders and letting them know you’re in debt trouble. It is in their interest to have you remain solvent, and they may work out a more suitable payment plan for you to achieve this end. The alternative – your bankruptcy – would leave them with nothing.
- Will your credit rating stretch to a consolidation of your debts? If so, you must still make certain that this is the right thing to do. If high fees and high interest rates are involved, you could end up in an even deeper debt hole.
- Court proceedings. If you do end up in court, you can apply to have your debt repaid by instalments. The amount has to be low enough for you to keep up with the repayments, but not so low that the court thinks you’re being unreasonable.
- Bankruptcy. This is the last resort, but at least it draws a line under your current debt. The downside is that your will not be discharged as a bankrupt for three years, and during that time your ability to borrow will be severely restricted and you may be turned down for certain jobs.
If you do look into debt consolidation and repayment then please remember that extra payments each month will help you to reduce your loan a lot faster. You’ll save thousands of dollars in the process and come away debt-free a lot sooner.
Managing your debt
Managing your credit card spending and repayments is an important part of owning a credit card. If you need help, read our guide to credit card management to make sure you understand the credit card you have in your wallet.
We have written a number of articles covering the topic of Debt Consolidation and Repayment which will hopefully make your journey to becoming debt free faster and a lot easier:Debt Consolidation and Repayment. For more tips on managing your personal finances and saving money, make sure you read our guide to personal finance tips.Back to top
Methods of repaying your debt
Since different types of repayment methods do different things to achieve the same goal, it’s important that you pick the option that is suited for your personal financial needs. You don’t want to pick an option that will end up hurting you in the long run. Examine all of your options before selecting a repayment method and remember to consult a professional if you get overwhelmed or confused.
The term repayment methods refers to how you go about actually repaying your debt in general. There is more to debt repayment than just paying the minimum amount on your bills, with common repayment methods including:
- Snowball method. This is when you pay off your smaller debts first, regardless of interest rates. While this doesn’t result in lower payments, it does help your overall credit history and gives you some breathing room by eliminating these bills.
- Highest interest first method. This is when you pay off your highest interest rate debts first. This method will lead to lower repayments across the life of your existing balance.
- Balance transfers. This method will allow you to clear the balance of one debt by moving it to another loan (another credit card or a personal loan) with a lower interest rate. This lowers the amount of money you’re paying towards a debt while clearing a balance.
Personal loan or balance transfer?
A balance transfer credit card is also known as a debt consolidation credit card. These are credit cards with competitive interest rates. The idea behind this is that you transfer your current credit card balances from high interest cards to this debt consolidation card. You are given a set time (honeymoon period) to pay off the balance at 0% p.a. This is usually a six- or 12-month window where they will give you lower repayments.
Most credit card issuers won’t let you balance transfer a personal loan into a credit card. Though at the time of writing Virgin and Citibank allow this.
The downside of this form of debt consolidation is that once that honeymoon period is over, your interest rate returns to a higher one (usually higher than a normal credit card). So if you don’t pay off that balance during the 0% p.a. period, you’ll be looking at a high repayment all over again and more debt. That is the opposite of your goal. Based on this information, balance transfers are only good if you are able to pay off the full balance within the introductory period.
Personal loans have become more popular because interest rates are around 13% p.a. in most cases. Your loan is usually spread over a few years, while the loan provider will set a fixed amount to be paid in monthly instalments. This lets you have a good idea of how much you’ll be putting out towards your debt instead of dealing with fluctuating interest payments. Overall, personal loans allow you to repay debts sooner and can end up being the cheaper option when compared to debt consolidation credit cards.
Since personal loans are spread across a longer time period at lower interest rates, they are the ideal option for larger debts like home renovations, car payments or holidays. Smaller debts may be better served by balance transfers since they can be paid off in the small time frame available.
Whether you are looking to lower your payments or just want to combine your numerous bills into one easy-to-remember payment, debt consolidation could help. When looking for repayment options, come to finder.com.au for information on a wide range of choices available.
Risks of debt consolidation
- One of the biggest risks of consolidating your debt is extending the debt for longer than is necessary. Be wary of lender or credit issuers trying to do this.
- Lenders and credit issuers may also pressure you into claiming bankruptcy; this isn’t always the ideal solution and you may want to see if there are any other options out there.