4 Ways to Consolidate your Debt

July 5, 2020

Small debts may not seem significant, but having multiple smaller debts could mean you pay higher interest rates and multiple sets of fees, all of which can take a hit at your finances. A consolidated loan can be easier to manage as you’ll potentially only need to make one monthly repayment.

The first step in this process is to understand your debt position. What that means is that you have to look closely at your debt. Check how much do you really owe across all of your debts? How much interest are you paying each month in total? Are you paying too much in fees? What are the exit conditions of each debt?

Now there are a few options to consider, when consolidating all your debt. All of these focus on helping reduce overall repayments and financial burden and stress, but it is still in your hands to manage your finances and avoid accruing debts.

1) Personal Loan

First of the options is a personal loan. A personal loan can be a useful tool to consolidate debt. It may be useful for individuals who have multiple debts with high interest rates such as credit cards and other loans. With only one repayment to account for each month, it helps you to budget easier and to manage your finances better.

2) Credit Card Balance Transfers

A credit card balance transfer involves transferring the balance of one or more existing credit cards into a new one, usually in favour of a lower interest rate on the full balance, making payments more manageable or shortening the payoff period. The debt you roll over will have a promotional rate (usually 0% p.a.) applicable for a limited period. So it is a good idea to also consider the ‘revert’ (usually 20% or higher p.a.) rate that will apply to any existing balance once the low rate expires.

3) Refinancing Home Loan

Refinancing your home loan to include other debts, could mean a reduction in your overall monthly repayments. Consolidating debt may be as simple as topping up the balance of your loan to pay out other debts, or refinancing to a new, bigger loan if you believe this lets you access a better loan rate or improved features. This does mean your overall loan will take longer to pay down, but repayments on the overall debt will be much lower.

4) Home equity loan

A home equity loan is a lump sum loan with a fixed interest rate. If you’re a homeowner, you may be able to take out a loan on the equity in your home and use it to pay off your credit cards or other debts. Since the loans are secured by your house, you’re likely to get a lower rate than what you would find on a personal loan or balance transfer credit card. And since there is a long repayment period, it helps to keep payments lower.

Consolidation isn’t a silver bullet for debt problems. It does not erase or reduce debt obligations. It just changes multiple payments to one lump-sum payment, possibly at a lower interest rate. It can reduce your total debt and re-organise it so you pay it off faster and may help to reduce financial stress.

When in doubt, reach out to us at Euphoria Loans and let us help you research the most suitable options for your current situation.