Repaying your debt can be a hard task without the right advice.
Debt Consolidation can involve assessing your current situation in terms of your current credit card, home loan or personal loan, and combining (refinancing) those debts in to a new lower interest loan to make it easier for you make repayments and pay down your debt.
Consolidate your credit card debt with a balance transfer offer:
As the average of the personal debt of each Australian has risen to $50,000 – twice the amount of a short five years ago – more and more people are struggling with debt consolidation and repayment. Yes, we certainly also do have more assets these days. But due to increased financial pressures most of us face, debt consolidation loans are being utilised at an all time high. Balance transfers also provide a valid means for credit card consolidation and are steadily increasing in popularity.
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. First, let’s look at.
Since a personal loan can be fixed at a rate of around 13%, you’re allowed to transfers 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.
Debt Consolidation Personal Loan Offer
SocietyOne Low Interest Personal Loan
SocietyOne Personal Loan offer a low interest personal loan with a low ongoing fee. Borrow up to $30,000
- Interest Rate From: 11.05% p.a.
- Comparison Rate: 12.77% p.a.
- Interest Rate Type: Variable
- Application Fee: Ranges from 1.50% to 4.5% in accordance with the borrowers SocietyOne Credit Score
- Minimum Loan Term: 1 year
- Maximum Loan Term: 3 year
- Minimum Loan Amount: $5,000
- Maximum Loan Amount: $30,000
Home equity is currently one of the most cost effective ways 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.)
Because of the all-time low interest rates we enjoy now, it is cheaper to draw money on a home loan than say with a credit card. Of course, you will need to factor in the time span here as well.
Debt consolidation loans
Debt consolidation loans are already very popular in the AU. These loans are aimed at giving you the best deal to pay off several others loans, such as a student loan, a personal loan, or even credit card debt.
It is advisable to analyse your options thoroughly and always pay back more than necessary to reduce the debt much faster. Otherwise your debt will remain active for many years to come. Just by choosing the right product you can save thousands in the process. It certainly pays to shop around.
Credit card balance transfers
Credit card balance transfers allow you to choose a reduced interest rate credit card for a honeymoon period of between 6-months up to lifetime.
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.
Debt consolidation and repayment with this method will require discipline from you.
As mentioned frequently among Credit Card Finder® articles and guides, balance transfers are the epitome of cheap and effective debt consolidation. Some of your options for balance transfers include:
- 0% for 12 months Balance Transfer offer on the St George Vertigo with a $55 p.a. annual fee.
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.
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 cannot hope to make any positive changes.
- 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 at the Centrelink website.
- 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 installments. 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.
Comparing different tactics of credit card repayment
If you have more than one credit card with an owing balance, there are two ways you can approach paying off your debt systematically. Both have its advantages and disadvantages, and will be subjective to different people.
For the sake of these calculations, we’ll use 3 credit cards. Their features are:
Interest Rate: 15%
Interest Rate: 20%
Interest Rate: 15%
Monthly Repayment: $500.
Lowest Balance First (The ‘Snowball’ Method)
This method consists of paying off your smallest balances first, regardless of interest rate and other factors. It is a popular method as although you may end up paying more, it gives a sense of achievement by clearing a balance sooner than later.
Using our credit card calculator, by using the snowball method, it was found that:
The ‘Snowball Method’ input into the calculator, using the hypothesized features.
Highest Interest First
In the majority of cases, this method will yield lower interest repayments over the life of your balance repayments. The results for paying off the highest interest cards first were:
The ‘Highest Interest Repaid First’ technique input into the calculator, using the hypothesized features.
By paying off the highest interest cards instead of lowest balance first, you would have saved $45.29. Next time you need to pay off multiple balances, give our free calculator a go to help you budget accordingly.
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.