Debt Consolidation

Here are three ways debt consolidation loans could save you money: 

1. Once you've used one to repay your other debts, you can close those other accounts to reduce the number of fees – such as monthly service fees or card annual fees - you'll need to pay. Note you’ll also need to check if there are any ‘break’ or early repayment fees for those other debts if you pay them off early.
2. Ideally the new loan you take out to consolidate all your debts is at a lower rate of interest than the interest rates of your current debts. If you have several debts at different rates, you might need to compare the average rate.
3. If practical, choose a repayment term for the new loan that's equal or shorter than the repayment terms of your current debts. Even a lower rate can end up costing more if it’s stretched out over a long repayment period.

To get an idea of how much you could save by consolidating:

1. Get an understanding of how much you’ll be repaying with your debts as they are now:
   
   • Add together all your regular repayments. These should already have the interest you’re charged factored-in 
   • Add-in any extra costs that mightn’t be covered by those regular repayments (e.g. a credit card’s annual fee)
   • Also add in any early repayment costs, sometimes called ‘break costs’ (note these are more likely for debts with a fixed repayment schedule, like other personal loans).
2. Compare those repayment costs to those for the same loan amount with a debt consolidation option, such as our personal loan. Our personal loan repayment calculator can help you do this.

Do:

• Check the detail with your current credit provider or providers to make sure you're clear about how much you owe, and any penalty costs for repaying your loan early  
• Pay off the debts immediately once you've received the debt consolidation loan funds. Some of these debts you may be able to pay off directly. If practical, close these other accounts to avoid further charges, or the risk of being tempted to use them again and create new debts. This can also help your credit score and credit history because each form of credit you have open – even if you don’t owe money on it – is viewed as a liability
• Consider all the costs of a new loan – in addition to interest rates, look at the lending establishment fee and any other fees
• Look at the impact of shorter or longer loan terms. While the interest rate might be the same regardless of term, a shorter repayment term means you’ll be charged less interest and fees overall, but have higher regular repayments. Conversely, longer repayment terms might charge more in interest and fees overall, but as their regular repayments might be lower, it could work better for your budget by freeing up cashflow.  

Don't:

• Avoid making more than one loan application, as that could negatively affect your credit score, reducing the likelihood you're approved
• Don't simply put all your debts against your home loan without checking the costs. While home loans might have lower interest rates, again, their longer repayment period means you might end up paying significantly more in interest as a borrower.
• Don’t apply for a debt consolidation loan before checking how much you’re likely to be approved for. Our borrowing power calculator could help here.