How Does Debt Consolidation Work In Australia?

More often than not they may attract you with an initial ‘teaser’ rate which may look low at the start, but can then sting you with a much higher rate after an introductory period.

When consumers take out several lines of credit with different providers, it often doesn’t take long to start getting bogged down with monthly repayments. In fact, this may be the time for them to consider doing something about debt consolidation.

If you’re in this position, you might be wondering ... what is debt consolidation? How does it work? And what should you know about the process?

Debt consolidation is when you take out one loan to pay off multiple debts. 

This can help you to simplify the juggling act of paying off multiple debts, as it allows you to make one monthly payment instead of many to different creditors.

On top of this, debt consolidation can also help reduce the overall interest and fees you are paying on multiple debts.

In Australia, debt consolidation typically involves taking out a loan to pay off multiple credit card debts and other unsecured loans. 

You can consolidate your debts with a Wisr loan, your bank, credit union or an online lender. 

Your new loan will likely have a lower interest rate than the interest rates on your debts being consolidated.

When consolidating your debts, it's important to look for a loan with a low-interest rate (start the process by getting a rate estimate with Wisr), as this will help reduce the overall cost of your loan. It's also important to consider any loan fees, such as establishment fees and ongoing fees (as these might cost you). 

It’s important to understand exactly what debt consolidation is and how it works. Keep in mind that it doesn’t change or relieve the original debt – it simply transfers separate individual debts to a single credit facility, potentially making it more manageable. Keep in mind that another loan may not always be the right answer.

It is also a good idea to look for everyday ways to help you pay down your debt faster, like using Wisr App to help pay down your debt in the background. 

Debt consolidation loans are usually used for high-interest credit cards, but any unsecured debt can be consolidated. 

There are some instances where secured debt - such as a secured car loan - can also be consolidated but it’s important to do your research and chat with your lender. 

You can apply for debt consolidation with Wisr, any Australian bank, credit union or online lender. 

Why not get a free rate estimate now? taking a look won’t hurt your credit scores.

To make debt consolidation worthwhile, you’ll want to ensure you get better terms in one way or another. This may mean a lower rate of interest, a reduced monthly payment or an extended period to make repayments.

Imagine if you had half a dozen or more credit cards, each with a high interest rate and a significant balance. In this case, each of those credit card companies would require (at the very least) a minimum payment each month.

Now if you were to transfer all of those balances into one consolidated loan, with a more reasonable interest rate, but continue to apply the same total monthly repayment, then you might be able to repay the total outstanding debt more quickly, thus saving you on the total interest you’ll need to repay.

Firstly, it’s a good idea to make sure you know where you currently stand with your credit history.  The best way to do this is to obtain a free credit report from the major credit reporting bureaus such as Equifax, Illion and Experian. Wisr provides a free credit score check here.

Once you understand your current position, then it’s about working out which lender works best for your situation. A Broker may be able to help with that as well, or you can check if you’re eligible for a Wisr debt consolidation loan by getting a free rate estimate here.

If you have a number of different debts with various lenders, ideally, you should look to pay off the debt with the highest rate of interest first (this is known as the Avalanche Method) but once you have done that, move the payment that you would have paid to this first company onto another debt.

Remember, some companies will offer you markedly lower interest rates and/or a lower monthly payment but may extend the overall number of payments. However, this may take some of the pressure off your monthly obligations and may be a better solution for you.

A lot goes into working out your credit score, which includes applications for new credit, and your repayment conduct on your existing or new credit facilities. 

If you have multiple different payments which may be attracting high interest rates, consolidating all your debts into a single payment, with favourable terms may be a good option to consider.