Consumer debt has risen quite substantially in Australia in the last twenty years. While most of this debt is related to financing homes and vehicles, a good portion of Australians are heavily in debt to credit cards as well. Even though the same country has seen the rise of industry and prosperity, consumer debt has become a factor in influencing the health of the economy.
On a more personal level, borrowers spend nearly twice of what they earn meaning that many are indebted to creditors, in some case multiple creditors. Massive debt can be extremely crippling to anyone trying to achieve financial freedom and independence. However, climbing out of debt is achievable, as the rise of credit counseling and other agencies make it possible to come back from debilitating debt. The debt consolidation loan, for example, is probably one of the most popular ways to pay off debt and re-establish credit.
percent and how they can help you stay in control of your financial future.
Your Average Debt Consolidation Loan
Debt consolidation loans reduce the amount you pay on a monthly basis by combining all of the debts into one payment. The reason your payment is significantly reduced because, as opposed to paying on several different debts with several different interest rates, borrowers only make one payment at one interest rate. While it in no way reduces the principal amount, it can reduce the amount of money paid over time in interest.
Most financial institutions have some version of debt consolidation loans. Moreover, debt consolidation loans with Latitude and other financial institutions offer a range of options. However, borrowers really benefit from a debt consolidation loan that accompanies a counseling program, which can address the root causes of debt.
Debt That Qualifies For Consolidation
Borrowers who find themselves overextended can pretty much use a consolidation loan to combine most types of debt. However, some existing debts have stipulations that make it disadvantageous to consolidate. For instance, student loans, both private and governmental, have very different guidelines to your average loan or credit card debt.
Also, debts related to both education and home mortgage loans are considered good debts because they are seen as an investment, so it might not necessarily benefit the borrower to enter into a consolidation program, especially when the interest on many debt consolidation loans is much higher. For the most part, debt consolidation loans cover most types of debts, but it is not always to the borrower’s advantage to consolidate.
Pros And Cons Of Debt Consolidation Loans
The benefits of the debt consolidation loan relate specifically to the relief that comes with not having to pay out a lot of money on a monthly basis. Furthermore, the interest rate, while high, still is much better than paying on credit card interest, which can be anywhere between 15 and 25 per cent for borrowers. Borrowers also benefit from being able to have one due date, as opposed to multiple. Finally, debt consolidation can help borrowers rein in an out-of-control debt situation and help them re-establish their credit.
The disadvantages of debt consolidation loans are that many of them charge both an origination fee and an additional termination fee for paying off the loan early. Moreover, because the company has to make inquiries on the credit file, a person’s credit is affected. Also, borrowers are prohibited, in many cases, from taking on new debts.
Using Credit To Reduce Debt
The alternatives to debt consolidation, including filing for bankruptcy, can delay accomplishing many financial goals. While it might seem redundant to use credit to get back into financial health, debt consolidation loans can remedy a damaged credit file. To gain the advantage, though, borrowers should come to any loan consolidation loan with a plan to pay off the debt quickly.