Debt Consolidation Before Interest Rate Decision
Australia is expected to see a rise in interest rates in 2023. This increase could impact those with variable car loans and personal loans, along with other types of debt, resulting in many Australians needing to adjust their finances accordingly. It is important to stay informed and create a plan if you want to make the most of your money and avoid any financial hardship. Paying off more than one debt at a time can be challenging and complicated, but we are here to help you understand ways to make it ez.
What is Debt Consolidation?
Debt consolidation allows you to bring together multiple bills, fees, and charges into one convenient monthly repayment with a single interest rate or spread the payments over a longer period of time. It gives you the opportunity to take control of your debt and establish a clearer plan for when and how to pay off your loan and significantly reduce the amount of money owed over the life of the loan or ease the monthly commitment. Debt consolidation has become a common way to get on top of multiple bills with the rising interest rates of the Australian economy.
How does it work?
If you have multiple debts such as two credit cards with $2000 and $4000 and a personal loan with a debt of $5000, it can be hard to stay on top of them all due to different interest rates, repayment amounts and due dates. Consolidation of these debts into one personal loan allows you to have only one set of recurring payments over a set term, and the single interest rate might be lower than your existing debts – saving you money overall.
Does Debt Consolidation hurt your credit score?
Your credit score may initially take a hit when you apply for debt consolidation due to the credit inquiry, but if you make your new payments on time, it will prove beneficial overall. This is because you will avoid making late repayments and lower your credit utilisation ratio — both of which can help in improving your overall credit score.
Is it worth consolidating your debts?
Consolidating your credit card debts can be beneficial in terms of reducing stress, rectifying poor credit, and saving money.
It is worth consolidating your debt if:
- You are offered better comparison rates – Make sure to compare interest rates and review the loan term before making any decisions. There is no point consolidating your debt if you are not saving money in the process.
- You have a high credit card balance on multiple accounts – If your debt is small and you think you can pay it off in twelve months or less, then consolidating is not worth the effort, considering the time and fees involved in getting a new loan.
- If you can make a low-interest balance transfer – Because you are streamlining all your debt into one account, be sure that the interest rate is low, otherwise your direct debit payments can become high. To make sure you are getting the best deal for yourself, use a repayment calculator.
- You have a high credit score. Most lenders and creditors will not offer debt consolidation as an option unless you have a proven history of meeting debt repayments.
Feeling overwhelmed by debt is common, and consolidating your loans into a single, manageable account can help. Before you agree to any debt consolidation agreement, make sure you can keep up with the payments regularly and manage due dates. If not, consider speaking to our team of trained professionals at EZPZ Finance who are more than happy to help you.
At ezpz Finance, we make finance ez. A personal loan can be a useful tool for debt consolidation as it allows borrowers to pay off multiple debts with lower interest rates and fees. If you would like to discuss taking out a personal loan or consolidating an existing loan contact us today.