20 Effective Debt Consolidation Loans Tips with Bad Credit

8 min read
  • Author Ray Ethell
  • Published January 14, 2023
  • Word count 1,287

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Title: Expert Tips for Successful Debt Consolidation in Australia

Author: Ray Ethell
Published: January 14, 2023
Word Count: 1,287

View author’s other articles

Debt consolidation has emerged as a viable solution for many Australians struggling with debt, especially during the challenging times brought about by COVID-19. Consolidating debt can help break the cycle of financial burden, but it’s crucial to approach it with the right strategies. To guide you in making informed decisions, here are expert tips for effective debt consolidation.

Debt Management Tips: Preparing for Debt Consolidation

Create a comprehensive list of your debts:
Before seeking a debt consolidation loan, start by assessing the total amount owed, the existing repayment plans, and the ultimate repayment obligation at the end of each term.

Reduce outgoings by reviewing providers:
Take steps to reduce your expenses by exploring alternative providers for insurance, utilities, and other services you require.

Decrease owed amounts by selling assets:
Consider selling valuable assets that are not essential to reduce the overall credit needed for repaying existing debt.

Develop an income and expenditure sheet:
Create a thorough budget that outlines your income and expenses, allowing you to determine a realistic monthly repayment capacity after reducing debt and cutting unnecessary expenses.

Explore reclaiming bank charges:
In cases of genuine financial hardship, you might be eligible for a refund of bank fees. Initiate contact with your bank, maintain records of communication, and escalate the matter to the Financial Ombudsman if necessary.

Assess your credit score through a credit history check:
Obtain your credit report to understand the health of your credit score, as it directly influences the availability of suitable debt consolidation products. This step is essential before applying for any debt consolidation loan.

Tips for Researching and Choosing a Debt Consolidation Solution

Conduct market research for low-interest debt consolidation products:
Use comparison websites to explore various debt consolidation loan options and their associated interest rates. Be aware that multiple credit applications can negatively impact your credit history, potentially affecting your chances of securing a loan.

Consider equity release loans for homeowners:
If you own a property that has significantly appreciated in value, an equity release loan might provide a competitive interest rate for debt consolidation. However, it’s important to compare interest rates with other debt consolidation loans.

Evaluate the risks of replacing unsecured debt with secured debt:
Carefully consider whether securing a substantial amount of debt consolidation against your home is a wise decision, especially if you have experienced severe financial difficulties.

Approach car loan consolidation cautiously:
If you have a car loan, assess the terms and conditions before including it in your debt consolidation. Depending on the situation, returning the vehicle to the finance company may be a more advantageous option, particularly if you have already repaid more than half of its term.

Negotiate lower interest rates with creditors:
Engage in conversations with your creditors to explore the possibility of switching to lower interest rate products. However, keep in mind that credit applications may affect your credit report, so consider the number of creditors involved.

Consult your bank for debt consolidation options:
If you have multiple products with a single provider, such as a bank account, credit card, and loan, consult with the bank to understand the available options. A personal loan from the same provider may offer a better interest rate compared to existing products.

Important Considerations and Post-Consolidation Strategies

Assess additional fees and charges:
When considering a debt consolidation loan, thoroughly understand the associated fees and charges, including interest rates, bank fees, penalties, and missed repayment charges.

Improve your credit score before consolidation:
If you have a poor credit score, take time to work on improving it before applying for debt

With the advent of COVID many Australians have been struggling with debt. Debt comes in many forms, there are previous loan installments, bills, payments and obligations that have piled up and end up becoming debt. One of the best ways to get out of the vicious cycle of debt can be by taking a debt consolidation loan. If you‘re considering a debt consolidation loan as a path forward, here are our expert tips for debt consolidation, done right.

Debt management tips – Prior to searching for a debt consolidation loan

1.Begin by creating a list of your debts

The first step of debt management before searching for a debt consolidation credit product is to know how much you owe, how much you’re paying on your credit and the total that will be repaid at the end of the term.

  1. Reduce your outgoings by switching providers for insurance, utilities and service providers

A further step for redressing the balance of your debt management prior to debt consolidation is to reduce your outgoings is to review your insurance, utilities and service providers.

  1. Reduce the amount you owe through selling assets

If you own valuable assets that you don’t need, it may make sense to sell them to reduce the amount of new credit you require to repay your existing debt.

  1. Create an income and expenditure sheet

The next step for creating a thorough debt management plan is to understand how much you can reasonably afford to repay each month after you’ve reduced your debt through selling assets and cutting out unnecessary expenses.

  1. Find out whether you can reclaim your bank charges

If you’re facing genuine financial hardship you may be eligible for a refund of your bank fees. You should start by writing a letter or email to your bank, being sure to keep a copy yourself. If your request is refused, you may want to make a complaint to the Financial Ombudsman.

  1. Access your credit history to check your credit score

The health of your credit score will directly affect what credit products are available to you for debt consolidation. So as a final debt management step, you should download a credit report before applying for so much as a single debt consolidation loan.

  1. Research the market and look for low-interest debt consolidation products

Always use a comparison website to research potential debt consolidation loans. This will provide you with a full view of the market, although your credit record may restrict your options if you require a debt consolidation loan with bad credit. Repaying a singular loan will also make your debt management far simpler.

It’s important that you understand that numerous credit applications can put a dent in your credit history. Ultimately this may stop you from obtaining a debt consolidation loan at all.

  1. If you’re a homeowner, consider whether an equity release loan could be a possible debt consolidation solution

Equity release debt consolidation loans offer some of the most competitive interest rates available. If your home has increased in value significantly since you purchased it, an equity release loan may be a viable debt management solution, although you should still research other debt consolidation loans to compare interest rates.

  1. Carefully consider whether replacing unsecured lending with secured lending would put you at risk

A further consideration to the debt management tip above is whether you will be responsible with your debt management in the future. If you’re facing serious financial troubles, it may not be a wise move to secure a large amount of debt consolidation against your home.

  1. If part of your debts includes a car loan, tread carefully

If your vehicle is on hire purchase don’t immediately think that consolidating this debt is the best solution. If you’ve owned your vehicle (and kept up with its repayments) for more than half of its term, you may be able to simply hand the vehicle back to the finance company. This can free you from any negative equity, and you may be able to use a cheaper alternative (such as leasing).

  1. Contact your creditors and ask whether they can offer you a lower interest rate

Before deciding that debt consolidation is right for your needs, you should talk with those you owe money to, to see whether they could switch your product onto a lower interest rate. Just bear in mind that if they do run a credit application, this will register on your credit report. As this can affect your ability to get more credit, this tip won’t be suitable if you have a large number of creditors.

  1. Speak with your bank about debt consolidation if you owe money over numerous products

If you hold numerous products with one provider – for example, a credit card, loan and overdrafts with your bank – you should speak with that provider about what your options are. In the case we’ve just mentioned, a personal loan will almost always offer a better interest rate than those offered by your bank account and credit card.

  1. Always understand how much any extra fees and charges will amount to before taking out a debt consolidation loan

Along with your list of debts, you’ll also need to understand how much you’re paying month by month in interest and any extra fees (such as bank charges for going overdrawn, or charges for missed repayments).

  1. Consider whether it may make sense to improve your credit score prior to applying for debt consolidation

If you find that you have a poor credit score, you may want to take a few months before applying for debt consolidation to focus on improving it. The tools we’ve mentioned above will all provide helpful suggestions for working on your credit score.

  1. Before agreeing to debt consolidation, research alternative debt solutions

Debt consolidation may not be right for your circumstances, particularly if you have poor credit and are unable to apply for a new loan.

  1. Until you’ve secured a debt consolidation loan, make sure you meet your repayment obligations

If you default on your credit products you greatly reduce the chance of being approved for any loan.

  1. Always seek professional credit expert advice before signing for new credit

Nothing can replace the value of expert credit advice, so this tip is simple – always ensure you speak with a trusted advisor before signing on the dotted line for debt consolidation.

  1. Decide on a plan for changing your spending habits in the future

Here’s a tough, but important, question to answer: are you spending more than your earning? If this applies to you, you’ll need to cut your outgoings if your debt management plan is going to work long after your debt consolidation.

So gain a good understanding of how much you’re spending on non-essentials and aim to cut them out or reduce them.

  1. Remove or reduce your overdrafts after your debt consolidation

Overdrafts are an easy way to fall back into the trap of debt. If you’re including your overdrafts in your debt consolidation, make sure you either remove them completely, or reduce them to a reasonable level.

  1. Cut up your credit cards

If you feel unable to control your use of your credit cards after your debt consolidation, cut them up or consider closing them altogether.

Speak to the National Debt Helpline

If you can not find a Solution in the above tips you can call the National Debt Helpline on 1800 007 007. Their professional financial counsellors provide free and confidential advice. The helpline is open from 9:30 am to 4:30 pm, Monday to Friday.

You can also visit the National Debt Helpline website. It has step-by-step guides explaining how to fix common debt problems.

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