Debt Consolidation Options
With thousands of Australians finding it increasingly difficult to cope with spiraling living expenses, more and more people are exploring the options of debt consolidation and budgeting in a bid to control their finances. One in five Australians are struggling with their credit card debts and spending thousands of dollars each year on interest and unnecessary fees. If the financial crisis that is currently crippling Europe and the US were to directly hit Australia, thousands of locals could end up in a much worse situation than they are already in. There are several options available to households aiming to simplify their financial challenges and free up cash.
Debt consolidation gathers all of your existing unsecured loans and puts them into one loan. You end up with having to make just one repayment instead of juggling several repayments at different times throughout the month. You can often get a debt consolidation loan at a lower interest rate than you are currently paying, saving thousands of dollars in interest each year, along with the possibility of getting the debt paid off quicker. Use a debt consolidation calculator to get a glimpse of possible savings.
What are the main options available to you?
1. Home Equity Release (Refinance)
If you are a home owner and there is enough equity in your property, this may be an option for you. Essentially with a refinance you are using the equity in your home to pay off your existing debts. You will get a much lower rate than a personal loan but it may take longer to pay off the debt in full as it will extend the term of your current mortgage. Although, reinvesting the savings you acquire from the refinance back into your mortgage repayments, will speed up the mortgage repayment term.
2. A Personal Loan
Many financial institutions offer debt consolidation loans to existing customers to help them manage debts in one simple repayment. Interest rates can vary depending on the provider and often depend on the customer having a good repayment history and an unimpaired credit file.
3. Balance Transfer to a lower interest rate credit card
There are often offers from credit card companies to transfer the balances from existing cards or loans to a cheaper rate. The problem with this is that people often keep the other cards open and can slip back into using them, increasing their debt level even further. Another difficulty commonly encountered, is the time frame of the low transfer rate. Typically, the lower rate stays in place for 6 – 12 months, and if you are struggling to make payments, when the offer time expires you can often be left in a worse situation than you were to begin with.
4. Debt Agreement
For a large number of people who need debt consolidation, they may trouble securing a loan or credit card because of impaired credit from late or missed repayments. Trying to obtain any of the above options may be difficult. If you have impaired credit, another option is to contact a debt agreement administrator who can assist with making payment arrangements with your creditors.
As a last resort, you may want to consider bankruptcy. Depending on the severity of your debt, it may be a wise move to essentially start over again. At a certain point debt can become overwhelming. If you are already late on and missing repayments and just continue to fall further and further behind, bankruptcy may be a good option for you.
The above options are the main forms of debt consolidation. There are other solutions to getting on top of debt; such as selling off unwanted items for cash to pay down debt, downgrading items and services, borrowing from family members, taking on part time work, etc.
It all really comes down to budgeting first and foremost to understand all the ins and outs or your finances. Then taking action based on your specific circumstances and understanding what you qualify for. Sometimes you have to take a step back to be able to move forward.