Debt consolidation is getting one, lower interest loan to pay off multiple short-term, high interest debts.
That all adds up to a lot less stress! You’ll also have a better chance of reaching financial goals you may not have thought were possible.
Common forms of debt consolidation are:
Unsecured personal debts - such as credit cards, store credit, hire purchases, ‘payday’ loans, unsecured personal loans, household bills (e.g. utilities), cell phone bills, medical bills, and in some cases, car loans.
Secured debts (there is an asset that could be taken if you’re unable to make the repayments), usually can’t be paid off with a debt consolidation loan.
As long as you can make the loan repayments on time, getting a debt consolidation loan will have an overall positive impact on your Credit Ratings (Scores) and Credit Reports - especially if you use it to pay existing debts off in full.
It’s not just the loan interest rate that’s important (make sure you compare interest rates and ask lenders for their full range of rates). Check the ‘fine print’ - including how long you have to pay it off (the repayment term), and any fees or charges. Then calculate whether you will definitely save money by taking out a debt consolidation loan.
It won’t help people who will keep taking on high interest debt they’ll struggle to pay off. This can become a vicious circle: a debt consolidation loan is far more likely to be approved if you have a good credit score (rating).
If you need help to decide, there are 200 organisations in New Zealand offering free, confidential budgeting advice.
Love My Money provides access to leading financial providers and we have step-by-step, online financial Journeys to help you pay debt off faster. E.g. Get on Top of Short-term Debt.