A debt consolidation loan is very similar to a personal loan, with one key difference: it’s there to help you pay for what you’re already paying for.
If you have multiple debts – such as a credit card debt, car loan, medical bills, bank overdraft charges, and so on – managing all your monthly repayments can feel overwhelming. Debt consolidation loans let you roll all of your debts together and pay them off together – in one handy payment and usually at a more competitive interest rate.
Lighten your load Debt consolidation is a way of streamlining all the money you owe. These loans generally allow you to enjoy a lower interest rate than you would receive with a credit card. You'll no longer have the hassle of multiple monthly payments and you also might be able to make early repayments if your bank balance is looking healthy. This may mean you can pay down your debt faster, helping you save in interest and getting you out of debt sooner.
But just like any other personal loan, they come in a few different shapes and sizes. Here are the two main ways to tell them apart.
Secured or unsecured You can often access a better rate if you’re willing to put up an asset as security against the loan. Just remember, with a secured loan, the lender has the right to repossess the asset if you can’t repay the debt.
Fixed or variable If you’re looking for complete control over your money, you can choose to fix your loan, meaning you’ve locked in your interest rate and you can work out the exact total cost of your loan, down to the cent. Or you can keep the rate variable and see where the market takes you.
How much can I borrow? You can borrow between $2,000 and $50,000 or more, across a range of loan terms, from 1 to 7 years. The loan is paid back in regular instalments (weekly, fortnightly or monthly) with interest, which may be fixed or variable across the life of the loan.