Are personal loans a good option for consolidating debt?

Are personal loans a good option for consolidating debt?

By Kerri Jackson. Posted 6 March 2020. Categories: Personal Finance.

When you have some types of debt, it can seem like you're on a treadmill. No matter how long you run or how fast you go, it feels like you'll never get to the end. 

 This can be especially true if you have credit card debts, as there's no end date and it's all too easy to make another purchase that extends your credit. 

 There’s another common difficulty can be having multiple debts. With multiple payment dates to keep track of, and so much budgeting required to meet all the deadlines, it can be hard to make a real dent in any of them. 

 If these situations sound familiar and you're looking for a way to step off the treadmill, a debt consolidation loan could be useful. 

The problem with multiple debts

Let's say you have five outstanding debts at the moment, each for $1,000. There's a good chance you'll have five different payments to make during the month and each debt will have a different interest rate. 

While some loans may have a fixed rate that you knew about from day one, credit cards can surprise us with how much interest they charge once you get past the introductory offer. 

Each month, you'll make these five repayments and slowly reduce your debt. It can be difficult to make sure you have money in your account for each payment while managing other expenses, and a hassle to keep track of each repayment date. 

With credit cards, there's also the temptation to re-spend to make the most of your credit limit. If you have a large credit card debt, the interest you’re paying on it, may be more than the repayments you're making. Either way, your debt doesn't go down, but keeps going up. With more than one credit card, that spiral keeps getting worse. 

What is a debt consolidation loan?

Debt consolidation is a type of personal loan that can repayments easier, in some cases cheaper and lets you take back control of your finances. 

Rather than those five debts of $1000 with variable interest rates and different repayments dates, you could have one debt of $5000 with one interest rate and one repayment date. 

How much that interest rate is depends on a few factors, such as your credit score, but often it will be lower than the rate you get with credit cards. Also, because your debt consolidation loan has a set term, you'll know that you can have your debt paid off within a certain time.

If you want to, you can pay off your personal loan faster with smart budgeting or by paying back a little bit extra over the year. That way, you'll be debt-free sooner and able to reduce your stress. Many people find that the stress is lowered once they get a loan to sort out their situation as they can see a lot more clearly what they have to pay back and when. 

How to apply for a debt consolidation loan

With Harmoney, there are three simple steps to applying for a debt consolidation loan and getting your finances in order. Best of all, everything is done online, so you don't have any awkward face-to-face conversations about your situation. 

  1.  Set up an account at Harmoney.com.au and  fill out our online form that tells us how much you want, how you'll use it and a little bit about your financial situation. 
  2.  We read what you've sent us and assess your situation. We’ll then let you know how much you can borrow and what interest rate you're eligible for, based on your credit score and personal finances. 
  3.  If you accept your debt consolidation loan terms your money could be dispersed to your creditors within three days (timings may depend on the internal processes of creditors). If you wish to take out a loan for more than the total of your debts you will be given the option to apply for this through the online process.

Your loan management is also 100% online. You can keep track of your loan, its terms and your repayments through your account dashboard, making your debt easy to understand and repayments easier to manage. With less time spent trying to work out what's going on with your finances, you'll have more time to spend on the things you want to be doing.

 Disclaimer. Information in these articles is written to provide general guidance, and any details are correct at the time of posting. You should consider how the information might apply to your personal circumstances, and consider whether your needs mean you should seek specialist advice.