Should You Take Out a Personal Loan to Consolidate Debt?

Loans can help when you need extra money to solve life problems and achieve goals. You may have several lines of credit simultaneously depending on your creditworthiness and needs. And as long as you can manage all those personal loans without overburdening your budget, you’ll be fine. 

But too many obligations can be tricky to handle due to different payment amounts, interest, and due dates. If you don’t want to experience a severe problem due to late or missed payments, consider a new personal loan to consolidate debt.

What this article covers:

Are Debt Consolidation Personal Loans a Good Idea?

Taking out another loan in a tight financial situation may sound strange, but a suitable one can get you out of trouble. That arrangement will replace all existing loans, and it’s much easier to handle one payment than several.

Debt consolidation loans are desirable when there’s a risk of paying high interest and penalties due to missing deadlines or skipping payments. With an Aussie personal loan for this purpose, you can turn all your obligations into a single instalment with interest that can sometimes be lower than on all previous payments.

personal loan to consolidate debt

On top of gathering all your obligations in a single one, the best personal loans for debt consolidation bring more benefits:

  • You can lower your monthly instalment and thus relieve your budget.
  • You can speed up loan repayment if you need to get rid of debt faster.
  • Responsible behaviour and regular repayment can boost your credit score.
  • If you succeed in getting a cheap consolidation loan and fixed interest rate, you can save more over the loan lifetime.

How to Choose the Best Loans to Get Out of Debt

Once you determine you can benefit from these loans, you can start looking for the one that suits you best. It all comes down to a few simple steps:

  1. Determine whether you want to lower your payment or settle debt faster.
  2. Look for the best debt consolidation lender.
  3. Research and make a debt consolidation loan comparison.
  4. Choose and apply for the best loan for consolidating debt.

Know Your Goals

Before you start looking for personal loans for consolidation, the first step is to assess your needs. You should collect all high-interest debts you plan to pay off and calculate the total amount. These can be a payday loan, an instant personal loan, a high-interest credit card, or a consumer loan you took out under unfavourable conditions.

After determining how much you need, you must plan loan repayment within your budget. If you need to unburden your budget, you’ll look for the lowest consolidation loan rates and longer tenures. These can be from one to ten years.

debt consolidation personal loans

Look for Lenders

Once you determine your financial goals, you should look for the best lender for debt consolidation or a couple of them and compare their offers. There are several ways to consolidate your debts, but direct personal loans provide the most flexibility.

When choosing the best loan company to consolidate debt, you need someone with an excellent reputation and a proven track record. It can also be a lender with whom you have a positive history, which can bring you better lending terms. Their rates, fees, and lending criteria have to be transparent.

Here are some general requirements you should meet:

  • Being 18 or older
  • Australian citizenship or permanent residence
  • Regular income from employment, self-employment, benefits, or anything that provides long-term financial stability
  • Relatively good credit score, especially if you strive for the lowest rate debt consolidation loans

Research and Compare Consolidation Loans

When looking for the best financing option for your problem, you must compare interest rates for consolidation loans, their fees, and other lending terms. You can also check if they offer preapproval or prequalification, as it can help you get a sneak peek into the overall cost of the loan.

best loans to consolidate debt

Interest rates for debt consolidation loans are usually fixed and can be as low as a few per cent for people with excellent credit scores and stellar credit history. They don’t have to pledge collateral even when they need to borrow higher amounts.

But if you’re not an ideal borrower, you can look for lenders who provide personal loans for bad credit borrowers. In that case, annual interest rates can go up to 48%. Or you might opt for secured consolidation loans, which increase your chances of loan approval and getting more favourable lending terms.

These loans usually carry flexible lending terms. So if you’re a borrower with excellent credit history, you can count on lower rates or apply for an unsecured personal loan.

Besides interest rates, lenders can charge various fees for their loans. Be particularly careful with early closing and prepayment fees. For instance, some banks can set origination fees up to 10%, adding to loan costs.

Apply for a Personal Loan to Consolidate Debt

Assess the loan lender’s website and fill out the application form for a chosen personal loan online.

This procedure won’t take more than a few minutes, as you only provide basic information about yourself and your income. Lenders will use it to do a credit check and determine whether you can afford the loan.

best loan for consolidating debt

You’ll need supporting documents showing to prove your identity and income stability, and you can submit them in digital forms in just a few clicks. Besides ID documents, you’ll need your paycheck, recent bank statements, and proof of ownership in case you pledge collateral for secured loans.

Submitted documents undergo detailed checks, by which lenders estimate your ability to repay a loan and get back to you. If they find you reliable and trustworthy, you get loan approval, and after completing this deal, the money will be in your bank account in a few hours or on the next work day if you apply late at night or on weekends. 

Frequently Asked Questions

How Much Can I Borrow with Personal Loans for Debt Consolidation?

Best lenders for debt consolidation offer loans from a few thousand up to $50,000. But if necessary, you can look for debt consolidation loans over $50,000. However, these will be secured loans, so you must pledge collateral.

Does a Personal Loan for Debt Consolidation Affect My Credit Score?

Closing several lines of credit can lower your credit rating, especially if these have been used for a while, as older accounts carry more points. Also, when checking your application for personal loans to consolidate debt, lenders perform a credit check to determine your creditworthiness. That’s a hard inquiry on your credit score (preapproval is a soft inquiry), which can lower it temporarily.

Wrap Up

Debt consolidation makes perfect sense when it can provide real benefits, like saving money on interest or getting rid of debt faster. In your fight against high-interest payments, you could use a personal loan to consolidate debt, which can help you settle obligations and improve your financial standings in the long run.

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