What is a debt consolidation loan?
A debt consolidation loan is a way to combine all your debts – including credit card, personal loans, store cards and more – into one loan so you make just one regular repayment.
It means you can take a breath and take back some control. It also means no multiple annual fees, and one regular repayment, with one interest rate.
Interested to know what it could look like for you? Check out our debt consolidation calculator. It’s a tool that’ll show you how much your minimum repayments, and monthly interest, can change.
If you’re ready, you can also learn more about our personal loans for debt consolidation.
Why consolidate your debt?
Juggling multiple debts is stressful. By consolidating your debt, you could:
- manage just one regular repayment
- have a clear timeframe for when you’ll be debt free
- Save money, either by having less interest or fewer fees to pay (or both)
- remove the stress of managing multiple repayments.
Learn more about the benefits of debt consolidation.
How does debt consolidation work?
Follow these steps to learn how to consolidate your debt.
Group your debts
First, sit down and work out how much you owe and what your regular repayments are. This might be a little confronting, but it’s the first step to taking back control of your finances. The number you calculate will give you an idea of how big your debt consolidation loan might need to be.
You can use a budget planner to work out what you can afford to repay. Be realistic with your budget and make sure you’re still able to cover all your regular expenses like groceries, transport and utility bills.
Consolidate your repayments
Staying on top of a single repayment is easier to manage, and you’ll be able to choose a weekly, fortnightly or monthly repayment to fit with your pay cycle. Keep in mind that the length of your loan term will influence how much interest you pay. You can also use a debt consolidation calculator to work out the length of your loan and your estimated repayments.
Debt consolidation could also help you save on administration and account fees. You may also be able to secure a lower overall interest rate for your repayments.
Keep on top of your finances
Now that you’ve consolidated all your repayments into one, you have a clear end date for your loan. This can be a great way to motivate yourself to pay off your debt.
Balance transfer versus debt consolidation
A credit card balance transfer is when you move the money you owe on one credit card to a different card. This allows you to make just one regular repayment on your credit card debt, rather than juggling multiple repayments to multiple providers. A balance transfer usually gives you a special rate on the amount you transfer.
A debt consolidation loan is when you roll multiple debts into one. This could include credit card debt as well as personal loans and other types of unsecured debts.
What is personal loan refinancing?
Personal loan refinancing is when you apply for a new personal loan to replace one you already have. The reasons you might choose to refinance your loan are similar to the reasons you’d consider debt consolidation. You might want to find a better interest rate, merge multiple debts into one or borrow extra funds.
If you’re thinking about refinancing a personal loan, make sure the new loan has all the features that are important to you. Contact us for more information.
Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/manage-debt/what-is-debt-consolidation
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
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