Debt Consolidation Loans Explained

Debt Consolidation Loans

What are Debt Consolidation loans?

Debt consolidation loans allow you to combine multiple debts and consolidate them into a single loan so that you pay a single interest rate and a single monthly payment.

Most debt consolidation loans will offer you a lower interest rate than you are receiving on your credit cards and personal loans.  Therefore this reduced rate has the potential to save you thousands in interest over the course of the loan.

Instead of having to manage repayments to multiple banks and financial institutions, a debt consolidation loan allows you to deal with a single lender.

How does it work?

Debt consolidation is not complicated; it is really quite simple and is best illustrated with an example.  The table below is Jane’s example:

Jane has 2 credit cards on which she pays 18% interest and owes $8,000. She also has 3 store cards on which she pays 20% interest and owes $2000. Some years ago Jane took a personal loan to purchase a car; paying 8% on an original loan amount of $32,000.

Over the years Jane has diligently paid her monthly car loan payments but is having difficulty in keeping track of all her bills and is only managing to pay the minimum repayments on her credit cards.

Jane can apply to combine all her loans (5 cards and 1 personal loan) into a single loan, pay a single monthly payment and significantly reduce the amount of interest she has to pay (commonly between 8% and 14%). Consider the table below:

Credit

Amount
Owing

Interest
Rate

Minimum Monthly
Repayment

Time to
Repay Debt

Credit Card 1

$6000

18%

$122

7 Years

Credit Card 2

$2000

18%

$41

7 Years

Store Card 1

$500

20%

$13

5 Years

Store Card 2

$700

20%

$15

7 Years

Store Card 3

$800

20%

$20

5.5 Years

Personal Loan

$32000

8%

$755

5 Years

​Total Cards

$42000


$966

Under a consolidation loan at 8% interest over 5 years, Jane will reduce her minimum monthly repayment from $966 to $630.  That’s a saving of  $336 per month!  Note: Amounts may vary depending on the number of years on the consolidation loan.

Will a debt consolidation loan benefit me?

Debt consolidation loans may benefit you if you:

  • are struggling to make monthly payments and your overall debts have increased overtime because of added interest charges
  • have many bills coming in during one month and you are having difficulty in keeping track of the total amount that you owe

Most importantly, it could save you thousands in interest – money that is much better off in your pocket.

Combining all of your debt into one consolidation loan and paying a single monthly repayment can make it easier to keep track of your expenses and therefore easier to make and keep to a budget.

Payment defaults, which have a negative impact on your credit score, should be easier to avoid.

The use of a debt consolidation loan could also have a positive effect on your credit score in the long run if you maintain a good repayment history.

If your debt is adversely impacting your life and you think that debt consolidation might work for you, act today.  The longer you wait, the worse your currently situation could become.

Will I qualify for a debt consolidation loan?

Eligibility for a debt consolidation loan is at the discretion of the lender (usually a bank or credit company).

The basic criteria for eligibility is usually that you are employed full time, have a good credit rating and payment history.

A debt consolidation lender will also consider your income and your ability to service the minimum monthly repayments on the new consolidated amount.

If you would like to know more about our debt consolidation loans please contact Xdebt now for a free, no-obligation over the phone debt consultation to help you determine whether debt consolidation is an option for you.

Learn more about debt consolidation and how it can help you.

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