Debt consolidation for 2023?

If you’re facing financial difficulties and struggling with multiple bills, then consolidating your debts might be the best option. It’s the process of streamlining different types of debt into one monthly repayment. By forcing all your fees and charges to be paid together, you can see a clearer picture of how and when to pay off your debt. 

Ways to consolidate your debt include getting a 0% interest balance-transfer credit card or taking out fixed-rate debt consolidation loans to help with your repayment amount. 

Dealing with debt is a stressful experience, but consolidating your fees, charges, and types of loans in one payment is a surefire way to take back control of your financial situation.

Let’s get to the following commonly asked questions:

• What is the downside to consolidating debt?
• Does consolidating hurt your credit score?
• Is it worth consolidating your debts?
• What is the best way to consolidate debts?

What is the downside to consolidating debt?

There are pros and cons to all financial advice, and debt consolidation is no different. While it does help to streamline your personal debts, here are some downsides. 

• It won’t solve your financial hardship. While it can help to pay off your existing debt, consolidating loans won’t solve the issue of getting into debt in the first place. If you’re struggling to break even at the end of the month, it might be time to establish a strict budget to avoid more card debt.
• Increased up-front costs. Before sending your loan application it’s vital to check the cost of debt repayments. All consolidation loans will come with a fee, so make sure to check whether your current loans offer a lower interest rate. Upon application, your creditor will also perform a hard check on your credit history, so be prepared. 
• Missed payments. Even though your debt can be consolidated into a single loan, it won’t stop missed payments from affecting your credit rating. You’ll likely face fees if you miss your monthly payments. If you need urgent help with money, debt consolidation might not be for you. 

Does consolidating hurt your credit score?

All debt consolidation options available to you won’t harm your credit scoring in the long term. In fact, it’ll most likely benefit your score, but only if you stick to your loan repayment plans. After loan approval, you may see a temporary dip in your credit score because of a hard credit check by your loan and credit card company, but this will quickly be rectified. 

Going with a debt consolidation loan option could have the following benefits for your score: 

• Lowered credit utilisation ratio. A ratio of 30 percent or less is very beneficial for your credit score. By consolidating all your debts into one bank account, you’ll be using far less of your available credit. 
• Better payment history. While it will take time, making regular payments to your personal loan will build your credit score, since it shows your credit provider that you’re reliable. 

Is it worth consolidating your debts?

Credit card debt can cause a serious mental health decline, and finding a debt solution through consolidation is a beneficial way to not only save money but rectify bad credit and relieve stress. However, it’s only worth consolidating your debts if you're confident that you can make the monthly payments. If not, it could make your financial situation worse. 

It’s worth consolidating your debts if: 

• You’re offered better comparison rates. There’s no point in consolidating your debt if you’re not saving money in the process. Make sure to check the new loan term beforehand. 

• You have a high credit card balance on multiple accounts. A consolidated loan is only worth it if you have multiple credit lines, i.e. if you’re overdrawn on multiple credit cards. If your debt is only on one card, contact your credit issuer. 

• If you can make a low-interest balance transfer. Because you’re pooling your debt into one account, you need to make sure your interest is low. If not, your monthly direct debit could skyrocket. Use a repayment calculator to assure you’re getting a better deal. 

• Your credit reports are above 600. Most creditors won’t offer a consolidation loan unless you have a proven history of meeting your debt agreement. 

If you’re seeking more financial assistance, get in touch with financial advisors for professional advice. 

 What is the best way to consolidate debts?

If you’re facing financial difficulty, you could consolidate debt into one account, but it depends on your personal situation. If you’re thinking of managing your debts with a credit card balance transfer, make sure to apply for a 0% APR credit card. Alternatively, if you’re struggling to make minimum payments, applying for a loan online will reduce your monthly payments and provide short-term debt relief.

Summing up

Debt management can feel overwhelming, but a consolidation method streamlines your loans and finance options into one, easy-to-manage account. Before agreeing to a debt consolidation agreement, make sure you can meet the payment due dates and make regular payments. If not, we’d recommend talking through your options in financial counselling or alternatively contacting Australia’s national debt helpline. 

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With our helpful money manager tool, managing debt is easier than ever. Compare hundreds of debt consolidation loan providers and find the best deal for you. 

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.