Debt Consolidation

Debt consolidation loans are a good idea when:

• The bills just keep rolling in and you’re struggling to keep track of them all
• You are paying very high interest rates (credit cards, in particular, have high-interest rates)
• You are struggling to keep up with all your repayments and bills
• You have a stable source of income as you’ll need to commit to making the repayments each month
• You have created a budget and know how much you can afford to pay each month
• You are able to avoid getting into the same debt situation again.

For the loan to work, you need to be able to identify what spending behaviours led to your current situation and work on changing that behaviour so you don’t land up back here again. Remember, this loan is not a line of credit. You cannot reuse the money you have paid off as with a credit card. If you use a consolidation loan to pay off your credit cards, it’s up to you to not run them up again. If this is going to be an issue for you, then consider closing the accounts.

There are a few potential disadvantages:

• You could end up paying more, even with a lower interest rate and lower monthly repayments. To make sure you come out with a better outcome, calculate the full value of the consolidation loan and compare it to your current situation.
• If your new debt is very large it could harm your credit rating by being seen as a major risk.
• However, using less credit than you are eligible for and showing consistent, responsible behaviour could ensure your credit rating isn’t harmed.
• Using a secured debt consolidation loan, such as a home loan or refinancing, to replace your unsecured debts, such as credit card debt, could result in the loss of your home if you default on payments.
• If you don’t change your financial behaviour, and use of credit and debt, you could land up in a worse position than you started with. Again, debt consolidation loans only work if you are willing to change the spending behaviour that got you into the situation in the first place and learn to manage your finances better.

Generally, no. In fact, if you maintain your repayments, it can have a positive effect on your credit score over time. Only apply for a loan if you are relatively sure you will be successful because having multiple loans rejected can have a negative impact on your credit score.

Your credit report will contain information on your credit cards, arrears brought up to date, your credit applications, debt agreements, credit liability (information about credit accounts), repayment history, your defaults and other credit infringements as well as a few other details. It will not contain information about utility bills such as electricity unless you have defaulted on an amount of over $150 for more than 60 days. Different data stays on your credit report for different time periods.

• Repayment history stays on your report for two years.
• Your credit liabilities (such as debt consolidation loans) will stay on your account for the loan period plus two years (basically for two years after the loan is terminated or ceases to exist).
• Credit enquiries, overdue accounts, writs and summons, and court judgements stay on your report for five years.
• Serious credit infringements, such as a clearout (when a lender has not been able to contact you even though they tried to) will remain on your credit report for 7 years.

There are a few alternatives to debt consolidation available if this option doesn’t work for you.

The best option will always be smarter management of your finances. However, if your repayments have become unmanageable, you have a few options to consider such as:

• Home Loan Refinancing in which you combine all your unsecured debts into your home loan
• entering into a Debt Agreement. Debt Agreements are formal agreements between yourself and your unsecured creditors based on what you can reasonably afford.
• developing Informal Agreements with your creditors
• entering into a Personal Insolvency Agreement (PIA) or a Part 10 Agreement
• filing for Bankruptcy. This should be your last resort after having exhausted all other options.

The following debts can be consolidated:

• Credit card debts
• Personal loan debts
• Repayments and loans such as furniture or equipment payments
• ATO debts and more.

Bad credit can impact your future credit applications. This may make you worry about whether this impacts your opportunities to resolve your debt. Although it can happen, it is rare to have a debt consolidation loan application rejected, even if you have bad debt. However, the terms of your loan such as the loan amount, costs, and interest rates, may vary depending on your current circumstances.

Use our debt consolidation calculators to help you calculate your potential loan repayments and savings.

Quite often, when you have bad debt, you have a bad credit rating and may be worried about how this impacts your opportunities to resolve your debt. It’s rare for an application for a debt consolidation loan to be rejected, even with a bad credit rating. However, it can happen. The consolidation loan amount, costs, rates, and terms will vary depending on your current circumstances. Talk to our team to see what your options are.

A surprising benefit of consolidating your debt is the possibility that your credit rating can improve. How so? When you consolidate, you pay off the individual loans and take out a new loan. By paying off the individual loans, your credit rating indicates you’ve improved your debt situation. The challenge here will be to make sure you don’t default on the new consolidated loan, as this will negate the benefit you’ve gained from paying the smaller loans off.

To help you assess your situation and estimate the potential repayments on a debt consolidation loan, use our debt consolidation calculator. The calculator will help you work out the loan value as well as provide possible repayment amounts including interest over the repayment period, repayment dates, and more, so you can make a decision regarding your consolidation loan.

The amount of credit you are able to loan will depend greatly on your current financial situation and your credit rating. Contact us to help you identify how much you’ll be able to lend.

The interest rates applicable to your consolidation loan will depend greatly on your credit rating and the lenders. Contact us to help you identify what interest rates are available for you.

Debt Consolidation companies offer services to help you manage your debts and, in some cases, to consolidate or roll all your debts into one. Not all debt companies are equal and they can offer many different services. There are both not-for-profit and for-profit debt consolidation companies. Make sure the company you pick is a reputable and accredited one.

Debt consolidation companies in Australia offer a range of general financial guidance and support including information on managing your finances, how to improve your credit rating, options for getting out of debt and more.

A good debt consolidation company will offer the following services:

• a review of your current personal circumstances to ensure support is tailored to your personal situation
• financial guidance about your best options that have been tailored to your needs
• a debt management plan to help you get out of debt based on your income, budget and what repayments you can reasonably afford to pay
• negotiation with your current creditors to negotiate the terms of your debt with them
• help you consolidate your debts into a consolidation loan
• develop a repayment plan so you can see payment terms and fees, dates and when the consolidation loan will be repaid in full
• help you manage your credit, debt, and other financial obligations into the future.

When researching and choosing a debt consolidation company, look for the following:

• Registration with one or more industry associations such as Financial Counselling Australia, Australian Finance Industry Association, or a state-specific association.
• Third-party reviews on websites such as Product Review or simply Google “Debt Negotiators reviews” (remember to take reviews with a grain of salt as not all reviews will be genuine or accurate).
• Get personal recommendations from friends, family or colleagues.
• Make sure debt consolidation companies are licenced by the Australian Securities and Investments Commission (ASIC). To check if they are licensed, look them up on ASIC’s Professional Register.

The following red flags indicate your debt consolidation company could be less than reputable:

• Being asked to sign bank documents
• Being given a business loan instead of a consumer loan
• Not having an in-depth discussion about your debt and financial situation
• Being told not to worry about reading the paperwork
• Claiming to be able to help you no matter how bad your situation is

When researching companies, remember to assess their processes, terms and fees as well as the reviews before making a decision.