Aussies aren’t strangers to racking up debt. For example, they built up more than $18 million worth of credit card debt over the 2019 Christmas period alone, with 22 per cent listing getting out of debt as their top New Year’s resolution for 2020. But as we come closer to the second half of the year, it’s important that the goal doesn’t slip between the cracks.
When it comes to tackling multiple debts, consolidating them into one easy to manage loan is sometimes the best option. With so many different ways of doing this, it pays to do some homework before signing up. Here are a few things to keep in mind.
Shop around for good deals
Personal loans are among the most common ways to consolidate debt, and every bank will have a unique offer to consider. It sounds obvious, but comparing many options will always get you the best deal possible.
Personal loans allow for the consolidation of all kinds of debts, whether it’s credit cards, car loans, personal loans etc. By putting all of your debt into one place, it not only makes it easier to keep track of and pay, but you could actually be paying less in interest.
Before you start looking around, you’ll need to add up the total of your debts and the interest you pay across all of them. This can get a bit fiddly, so don’t be afraid to take advantage of a debt calculator if you need a hand.
While a lower interest rate should be the top priority, it’s worth considering other features that align with how often you want to pay or how many extra repayments you can make. CUA, for example, offers loans at 9.89 per cent (10.14% comparison rate) with flexible repayment options (You can choose weekly, fortnightly or monthly payments to align with your pay cycle), no penalties for early payout and no monthly fees. Features like this make it easier to differentiate loans with similar interest rates.
Consider the options for credit card debt
If you’re only dealing with credit card debt, another option is to get a balance transfer. This involves moving your debt from one credit card to another with zero or very little interest charges for a period of time, usually around one year.
This is good if you can pay off the balance within the interest-free period so you don’t have to pay anything on the Balance Transfer value.
Watch out with refinancing
If you have a mortgage as well as smaller debts, you can choose to refinance all of them into a single loan. Like other options, this will give you an opportunity to pick up a lower interest rate and because mortgage rates are generally lower than other loans, repayments will be lower than maintaining all of them separately.
The issue is that you’ll be converting short term debt into long term debt, which could turn a 5-year car loan into a 20-year one. This could leave you paying more in interest over the longer period, even if it is at a lower rate than the one you started with.