Debt consolidation loans are a popular way to dust off debt, says SocietyOne

Do you feel that your multiple debts have become a bit complicated lately? Well, it might be time for some spring cleaning!

Managing multiple debts can be tricky, whether it’s paying off a car or personal loan or paying off your credit card. But that’s where a debt consolidation loan can make life a little easier (and probably cheaper!).

But are debt consolidation loans really that popular? To put it simply, yes they are.

According to online personal lender SocietyOne, around half (50%) of their loans taken out each month are for debt consolidation, with the average loan being around $20,000.

SocietyOne’s Chief Marketing Officer, Nicole Avery, explains how it all works.

“Let’s say you have a credit card (or a few of them), store cards, and maybe an existing car or personal loan. Not only does it take a lot of time and effort to make sure you pay it all back on time, but you could also end up paying a lot of interest on every debt,” she says.

“Debt consolidation loans are used to transfer all those debts into one easy to manage payment. Not only could this save you a lot of administration time, but it could save you thousands in interest and help you pay off your debts sooner.

Want to compare debt consolidation loans now? Check out these top options…

How much could I save with a debt consolidation loan?

It depends on a number of factors such as your current debt, interest rates, your repayments, etc.

Mozo banking expert Peter Marshall says that by consolidating their debt, consumers could end up significantly reducing the amount of interest they pay.

“The truth is that credit card rates have remained high over the years and although personal and auto loan rates have come down slightly, if you’re paying off a longer loan, you may not get a competitive rate,” he says.

“More and more Australian personal lenders are now offering debt consolidation loans. By opting for a low-rate debt consolidation loan, borrowers could end up paying less interest over the life of the loan than paying off their debts separately.

Currently on the Mozo database, the average interest rates on personal debt products are as follows:

  • Credit card: 16.88%
  • Unsecured personal loan: 9.74%
  • Secured personal loan: 7.25%
  • New car loan: 6.14%
  • Used car credit: 6.64%

So, with that in mind, let’s take a look at this scenario…

say you have $20,000 in debt. You owe $12,000 on an unsecured personal loan with an interest rate of 10% and $8,000 on two credit cards ($5,000 at 20.00% and $3,000 at 12%).

Currently, you would pay $674 in interest each month on the separate repayments and over three years, which would total $4,191 in interest.

However, if you opt for a three-year unsecured debt consolidation loan with an 8% interest rate, your one-time repayment will end up costing you $632 in interest each month. Over the life of the loan, you will end up paying $2,762 in interest, or $1,429 less than if you kept your repayments separate.

And if you landed a consolidation loan with an ever-lower rate, you could end up saving even more.

“Saving on interest can be the difference between keeping hundreds or even thousands of dollars in your pocket rather than in the hands of a lender,” says Marshall.

“In addition to a low interest rate, it’s important for consumers to remember to consider things like annual or monthly fees, as well as repayment features that can help them pay off their debt. sooner, which could save them even more in interest payments.

Will a debt consolidation loan impact my credit rating?

Like any other type of loan, such as a personal loan or a credit card, a debt consolidation loan can impact your credit score. But whether that’s good or bad is up to you and how you pay back what you owe.

“When you apply for any type of credit, the lender will most likely check your credit rating as part of the credit reporting process,” says Avery.

“This may initially lower your credit score, but provided you stay on top of your regular repayments, you’ll find that your score may actually improve over time, especially if you don’t apply for additional credit before the debt is repaid.”

It is therefore crucial that you always prioritize paying off your debts when it comes to your finances. By doing this, you will not only improve your credit rating, but you will also increase your chances of being approved or getting a lower rate later down the track.

Want to know more about debt consolidation? Access our debt consolidation center for more information and more top lenders!

DISCLAIMER: The comparison rate combines the lender’s interest rate, fees and charges into one rate to show the true cost of a personal loan. The comparative rates displayed are calculated on the basis of a loan of $30,000 with a term of 5 years or a loan of $10,000 with a term of 3 years as indicated, on the basis of repayments monthly principal and interest payments, on a secured basis for secured and unsecured loans. basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and durations will result in different comparison rates. Costs such as withdrawal fees or prepayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may affect the cost of the loan.

^ See Mozo Experts Choice Personal Loan Awards information

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