What Is Debt Consolidation and How Can It Help You?

Wondering what debt consolidation is?

Debt consolidation is the combining of multiple current debts into a single one. It may be an option for Aussies who are juggling multiple debts, tracking monthly repayments, and paying hefty interest rates.

In this guide, we’ll discuss everything you need to know about debt consolidation, including its pros and cons, and whether taking it out may help you. We’ll also explain how we can help you find a suitable lender for debt consolidation.

This guide is for Australians considering ways to manage multiple debts, as understanding debt consolidation can help you simplify your finances and potentially save money.

Please note that certain ideas and products presented in this article may not be offered by Monzi or the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal, or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

What is Debt Consolidation?

Debt consolidation is the process of rolling multiple existing debts (personal loans, credit cards, etc.) into one payment. As a result, only have one rate, one set of fees, and one repayment schedule with a consolidation loan.

Outside of making your life easier, consolidating your existing debts may end up saving you money on interest and fees.

But can all types of debt be consolidated?

You can consolidate secured and unsecured loans, irrespective of the interest rate or type. Here are the debts that people most commonly consolidate:

1. Credit cards: Consolidating multiple debts from credit cards into one low-rate card is called a balance transfer. Some banks may offer a low or 0% introductory interest rate on balance transfers to new credit cards.
2. Personal loans: Consolidating more than one personal loan into a single loan may make repayments simpler and, in some cases, even reduce the total interest rate. You can also consolidate multiple types of debts, including credit cards, store balances, and other loans, into one single personal loan.
3. Mortgages: If you have multiple debts (credit cards, personal loans, store cards), you may be able to roll those debts into your home loan using a top-up or redraw facility. Instead of paying several lenders at high interest rates, you have one debt, usually at a lower interest rate.

Now, let’s compare debt consolidation with some other terms that are closely associated with it.

Debt Consolidation Loan vs. Balance Transfer vs. Refinancing vs. Debt Settlement

Some other terms may be confused with debt consolidation as they are also often seen as shortcuts to loan repayment. Below are simple definitions of terms that are commonly mistaken for debt consolidation:

Now that you understand the difference between debt consolidation and other commonly used terms, let’s see how it works.

How Does Debt Consolidation Work?

Consolidating debt is an easy and simple process that usually doesn’t take much time to execute:

1. Easier to manage your repayments
2. A clear timeline
3. Get on top of your credit score
4. You could save money

As you now know how debt consolidation works, let’s see how to carry it out effectively.

How to Consolidate Your Debts?

Once you decide that combining multiple debts is best, doing the following may help optimize your debt repayment plan:

Step 1. Assess your spending

You may want to list all your debts, including outstanding balances, different interest rates, and monthly repayment amounts, to gain clarity and develop the right plan.

Step 2: Review your credit report

Lenders typically review your credit score to determine whether to approve debt consolidation and qualify you for the best rates. You can get free reports from services like Experian or Equifax.

Step 3: Create a budget

You can calculate an estimated monthly payment from a consolidated loan using a repayment calculator. Doing so can help you understand if consolidating debt is the right choice.

Step 4. Consolidate all your debts

Managing a single repayment is easier, and you’ll be able to choose weekly, fortnightly, or monthly payments to fit with your pay cycle.

If you are struggling with existing debt and looking for potential relief, consolidation may be worth considering. However, there are potential risks involved with any credit product.

What are the Pros & Cons of Consolidating Debts?

Knowing the pros and cons of combining current debts may help you make an informed decision about opting for debt consolidation. Let’s look at them:

Pros

• Easier repayments. Dealing with one lender, one repayment, and one set of fees is far easier than dealing with multiple. As a result, you can simplify your life and reduce stress.
• Save money. If done correctly, consolidating your debt could potentially save you money. If you’re paying fees and interest on a number of debts, it may be cheaper to pay down a single debt and a single interest rate.
• Debt relief: With reduced interest rates and fees, you may be able to close the debt faster.

Cons

• Strategic planning: If all your loans have high interest rates, you may not be able to save funds.
• Difficult approval: It may be difficult to secure approval if you have already defaulted on some repayments.

Now, let’s dive deep into credit card balance transfer.

How does a Credit Card Balance Transfer Work?

A credit card balance transfer, as the term suggests, is when you move the amount you owe on one credit card over to another. This also may be referred to as credit card debt consolidation. Generally, the new interest rate on the balance you transfer may be 0% or another low-rate for a specific period of time. However, comparing credit cards determines what’s available.

You can save money if you manage to repay the amount you transferred within the set period of time. If, however, you cannot, you may end up paying more than your original amount.

That might make you wonder, “Is a balance transfer right for me?”

Weigh up the pros and cons of a balance transfer card before deciding whether it is right for you.

Pros

• Lower rate: You may be able to take advantage of a low or even no interest rate during the promotional period.
• Better terms: You can transfer your balance to a different account with more attractive fees.
• Multiple cards: Balances from multiple cards can be transferred into one.
• Time frame: You’re given a set period of time to settle your debt before the promotional interest period ends.

Cons

• Higher rate: Once the promotional period ends, your interest rate may be more expensive than your regular card’s.
• Additional fee: Depending on the balance transfer card, you may need to pay a transfer fee of between 1% and 3%.
• Poor credit rating: Your credit rating may be adversely affected if you open a new card with a balance exceeding the limit.
• Fighting tendency to spend: It may be tempting to spend the new credit at your fingertips.

Weigh up your options before making a decision.

Although this may seem hard, the actual difficult task is getting a lender.

Finding a lender with an Australian Credit Licence (ACL) who offers a debt consolidation that fits your budget is hard. But we may be able to help.

Debt Consolidation With Monzi

Technically, Monzi does not offer any consolidation products directly. This is because we are a lender-finder service. If we’re able to match you with a lender, however, they may be able to help you consolidate your debt with a personal loan.

More specifically, the personal loans potentially on offer may be secured or unsecured, depending on the amount you apply for and the lender’s policies.

The loans potentially available through Monzi’s network of lenders are as follows:

Please note, however, that due to each lender in our network being an individual company, we cannot guarantee the terms of your loan. As such, the actual repayment terms on your loan may vary from what we present above.

Can You Get Debt Consolidation Loans with Bad Credit?

Yes, debt consolidation for bad credit loans is potentially available through Monzi’s network of lenders. These loans function like usual personal loans for consolidation, except they are available to Aussies with poor credit history.

Bad credit history could potentially be the result of:

• Missed or late payments
• Defaults
• Court orders
• Debt agreements

You may need to consider applying with a bad credit lender if your report is looking a little bruised. Traditional lenders like banks and credit unions may be hesitant to extend credit to consumers with poor credit scores.

Can You Apply for Unsecured Debt Consolidation Loans?

Yes, you can apply for unsecured debt consolidation loans through Monzi’s panel of lenders. Specifically, any loan valued at $2,000 or less cannot be secured by an asset.

If, however, you apply for a loan over $2,001, you may be required to nominate an asset as security. This is because attaching collateral to a loan reduces the risk posed to the lenders. As a result, lenders are often willing to offer larger amounts.

In addition, if you apply for a secured loan with bad credit, such as a debt consolidation loan, you may have a higher chance of success than if you apply for an unsecured loan. This is because your loan is guaranteed by your car, motorbike, or other asset.

Finally, remember that bad credit loans often carry higher interest rates to accommodate the additional risk.

How Do I Compare Debt Consolidation Loans?

While all personal loans for consolidation have the same intended purpose, different lenders vary in a number of ways. Moreover, it is important that you compare different lenders before making a decision.

When considering a personal loan, pay particular attention to the following:

• Rate: You need to find a lower rate than your original debt if you wish to save money.
• Fees & charges: Lenders may charge upfront and ongoing fees on top of your interest rate.
• Repayment term: Longer repayment terms result in lower regular payments but more paid in overall interest. The reverse is true for loans with shorter terms.
• Lender qualifications: Confirm the lender you are dealing with is fully licensed and reputable.

Finally, also take into consideration the comparison rate. The advertised comparison rate takes into account the interest plus most of the fees associated with your loan. As such, it may be a truer reflection of the cost of your loan.

What are Repayment Calculators?

Debt consolidation loan calculators provide a rough guide to what your regular repayments may be, and you can find them online. These calculators also provide an estimate of your repayments, based on the amount you wish to borrow, the term, and the interest rate.

But these calculators may not be exact. Instead, they simply aim to give you information to help you decide whether or not to apply.

Are there any Loans with Guaranteed Approval?

No lender operating legally in Australia should be offering loans with guaranteed approval. This is because of Australia’s National Consumer Credit Protection Act 2009.

In short, the key idea behind these responsible lending practices is that lenders only offer consumers credit products that are suitable for their situation.

What exactly do they mean by suitable? A credit product is considered suitable if:

• It meets your requirements and objectives; and
• You’re reasonably able to afford your regular repayments.

Therefore, to confirm your suitability, lenders must:

• Make inquiries into your financial situation, as well as your needs and goals.
• Take reasonable steps to confirm the above information.
• Make an assessment about whether the loan product is suitable.

As you can see, offering loans with no assessment is illegal. In short, be cautious around any lenders offering guaranteed loans. After all, they may be untrustworthy.

How Do I Apply with Monzi?

Monzi’s lender-finder service is easy to use. In fact, you can apply in three easy steps. Let’s show you how it’s done:

Step One

Aussies use the loan slider to pick the amount they wish to apply for. The loan slider provides estimates of repayments. These are simply estimates and may not reflect the actual cost of your loan. Moreover, you can pick your ideal repayment schedule and term.

Click apply now once you are happy with your selection.

Step Two

Next, the system takes you to our submission form. In short, you provide all your information. Don’t stress, though – we only ask for the important stuff, and there are helpful instructions at every step.

We also ask you to provide your online banking details. Understandably, some of you may be apprehensive. In short, our system asks for your details so we can pull read-only copies of your bank statements.

Monzi then passes this information on to potential lenders. Lenders use this information to get an idea of your current financial situation.

Step Three

Finally, Monzi gets to work once you submit your application. In short, we try to match your application with a potential lender.

If we are successful, we’ll let you know. The lender will then be in touch to complete the assessment. Remember, matching with a lender does not guarantee approval. Lenders conduct their own assessment.

Lenders send through a digital loan agreement if they can make you an offer.

What is in my Debt Consolidation Loan Contract?

Lenders offer a loan agreement if they can make you an offer. Moreover, it is essential that you read through this contract carefully before approving it.

After all, you are under no obligation to approve the contract offered to you. However, if you approve the contract and then decide to change your mind, things may become a little tricky.

Therefore, if you are considering Monzi Personal Loans, read through your contract to confirm you are happy with the following. You can also check out Monzi Personal Loans reviews to learn about other customers’ experiences.

• Amount: Lenders may not always be able to offer the loan you apply for on our site, but they’ll do their best. Therefore, confirm you are happy with the amount on offer.
• Interest: Do you understand what rate is applied to your loan? This will have a big impact on the total cost of your loan.
• Fees: Lenders charge upfront and ongoing fees. In addition, confirm you understand what happens if you miss or cancel a repayment.
• Term: Do you prefer a longer term with lower repayments or a shorter term with less paid in overall interest?

Ultimately, do not sign a contract you do not understand. Get in contact with your lender, and they will be able to help you.

How Do I Make Repayments?

Repayments are super easy and generally made through a direct debit set up from your account. In other words, your repayments are automatically deducted from your account until your loan settles.

Get in contact with your lender if you cannot afford an upcoming repayment. If you give them enough notice, they may be able to cancel or reschedule your payment for a contractual fee.

In addition, get in contact with your lender if your circumstances change. Moreover, you may be eligible for financial hardship if you cannot afford your repayments.

Consumers need to provide evidence of hardship when they apply. This may include:

• Separation certificate from the employer
• Medical certificate
• Bank statements showing a reduction in income.

Lenders assess your claim and may offer a repayment plan if you’re approved.

3 FAQs about Debt Consolidation

Here are some commonly asked questions about debt consolidation:

1. What credit score do you need for debt consolidation?

There are lenders allowing multiple loans consolidation with bad or good credit scores. However, whether you’ll be accepted or not will depend on individual banks.

2. What to do before applying for debt consolidation?

Before applying for debt consolidation, you may have to calculate the overall debt, interest rate, and repayment amounts. You can then compare this with the amount you may have to repay, the interest rate, and the loan term to make the right decision.

3. Why should you consolidate your debt?

Combining all your loans into one debt may make you debt-free earlier, as it typically helps save funds and gives greater control over finances.