Australia is one of the most expensive places in the world to live. This is especially true for those living in major metropolitan areas like Sydney and Melbourne. Because of this, it’s not uncommon for Australians to take out multiple loans to cover their monthly expenses. While this helps in the short term, it quickly causes problems with interest payments and outstanding balances. Luckily, there is a viable solution…and it’s called debt consolidation.
What is Debt Consolidation?
Debt consolidation is the process of taking out one large loan to pay off multiple smaller loans. For example, you may have six small loans with various banks and companies. Each month, you repay these loans with interest added on top of each. Through debt consolidation loans, you borrow an amount to pay off these six loans. Now, you only have one loan to repay each month.
Three Reasons to Consolidate Debts and Loans
Reduce Interest Payments – One of the main reasons people consolidate debts is to reduce the amount of interest they are paying each month. When you have multiple loans, you have to pay interest on each one. This can quickly add up and become very expensive. By consolidating your loans, you will only have to pay interest on one loan.
Let’s break down the numbers in an example – if you have six loans with an average interest rate of 12%, you might pay $720 in interest each month. If you consolidate these loans into one loan with an interest rate of just six percent, you would only have to pay $360 in interest each month. This can quickly add up and save you a lot of money in the long run.
Reduce Actual Borrowing – Next, another reason to consider loan consolidation is that it can reduce your actual borrowing. If you have several loans with different interest rates, you might be tempted to just make the minimum payments each month. This can extend the life of your loans and end up costing you more in interest in the long run.
At the moment, only a small percentage of your repayments are going towards reducing the actual debt. By consolidating your loans, you can change this so that a larger portion of each repayment goes towards the debt, meaning you pay it off quicker.
Be Free Faster – Finally, consolidating your loans can help you become debt-free faster. If you have several different debts, it can be difficult to keep track of them all and make sure you’re making the best progress possible. Consolidating them into one loan can simplify your repayments and help you become debt-free sooner.
There are lots of different reasons why people choose to consolidate their loans in Australia; these are just a few of the most common ones. For instance, another is that it’s much less stressful managing one loan compared to several. If you’re thinking about consolidating your loans, make sure to do your research and compare your options to find the best deal – many will offer an introductory low interest rate, and this allows you to pay off a larger chunk of debt during this initial stage.
To summarise, the three main reasons people choose to consolidate their loans are:
- To simplify repayments and become debt-free sooner
- To reduce interest payments
- To reduce the amount that they owe
Why not explore your options today because it could make a difference this year?