What Is A Debt Consolidation Loan And How Does It Work?
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Have you maxed out your credit card? Are you struggling to repay the money you’ve borrowed? Paying off that new set of wheels in the driveway? Juggling all of your debts can be a test of your multitasking skills, and your sanity.
By consolidating your debts, you can make your life easier and start living debt-free.
You’ll also save yourself some money along the way with a lower interest rate, and gain the advantage of a longer repayment window so you can better manage your daily budget over the short, medium and long term.
What is a debt consolidation loan?
Debt consolidation rolls multiple debts, typically high-interest debt such as credit card bills, into a single payment. Debt consolidation might be a good idea for you if you can get a lower interest rate. That will help you reduce your total debt and reorganize it so you can pay it off faster.
How does it work?
Managing your debts isn’t easy. You have multiple loans, debts, and credit cards. Each with varying interest rates. All due on different dates, with payments being sent to different accounts. It’s enough to drive the average Kiwi crazy.
Thankfully, consolidating your debts makes it easy to rid yourself of this financial burden.
In fact, it’s a process that you can complete in just 3 easy steps:
1. Gather together all of the documents, paperwork and relevant information you have on your current debts and loans such as NZ credit cards, vehicle financing or personal loans.
2. Calculate how much money you currently owe on all of your debts combined. While it can be difficult to face the facts, knowledge is power, so empower your financial self by working out just how much you owe.
3. Apply for a debt consolidation loan and, once approved, pay out all of your currently outstanding debts.
What are the benefits of debt consolidation?
Here are 7 ways debt consolidation can benefit you:
1. Pay a lower interest rate.
Debt consolidation loans are charged at a much lower rate than all of your individual loans or debts, such as hire purchases or credit cards.
2. Reduce your monthly repayments.
The average New Zealander is now burdened with record levels of debt. Chances are, you’re one of them. By consolidating your debts with a personal loan, you’ll be left with just one easy-to-manage monthly repayment, which often equates to a lower amount than all of your individual loans combined.
3. Pay your debts off over a longer period of time.
Some of your loans may be due by the end of the month. Others, six months from now. Either way, they can be difficult to keep track of. A debt consolidation loan makes life easy, giving you just one monthly payment and a repayment term that is often much longer than your existing debts.
4. Only one creditor to manage.
Multiple loans can be a hassle. Who do you owe money to? When is payment due? They each come with their own terms, conditions, rates and repayment dates. Juggling day-to-day life is difficult enough without the added stress of multiple creditors breathing down your neck, which is why consolidating your debts into one loan is just so sensible. It’s predictable, manageable, and makes your life easier.
5. Cut down on late fees and charges.
Life’s a marathon, not a sprint. Yet you’re probably running a million miles an hour just to keep up. It’s easy to forget a payment when you’re so busy. The resulting late fees, charges, as well as possible long-lasting marks against your credit report are an unnecessary hassle. With just one loan, there’s nothing to forget. Just mark the date in your calendar, and wave goodbye to late fees and charges.
6. Improve your credit score.
Your loans and debts are all recorded in your credit report, which is where your credit score comes from. Paying off your debts with a debt consolidation loan will mark these as paid on your credit report, which will improve your credit score by showing that you’re a responsible borrower who can meet their monthly repayments.
7. Become the boss of your debts.
Have you heard the story of Sisyphus? He spends all day rolling a boulder up a hill, only to wake up and do it all over again the next day. Day-in, day-out. If you’re struggling with debt, you’ll know how he feels. Even though you’re doing your best, it can feel like you aren’t making any progress. With debt consolidation you don’t just pay less, it’s also easier to make and track progress on your journey to becoming debt-free.
If you want to talk to us about applying for a loan please call Quick Loans on 0800 200 275 or simply apply online.
This is not legal advice.
by Ash Horton
20/07/2021
Ash is a professional content writer with extensive experience in business development in the financial services. Ash has founded businesses from the age of 19, including franchising ventures, and working alongside some of the largest retailers in the world.