Is debt consolidation still a way out?

Fixing financial problems with debt consolidation

It appears that the global financial crisis is still with us. Almost two years after it began, finances are as tight as ever. Although the Australian financial market is stronger and in considerably better shape than other developed countries, the average consumer is affected by increased living costs. Anyone with existing credit and loans are generally experiencing greater financial pressure than those with zero debt. The majority of people have some kind of loan or credit card which require repayments every month. Most of these people have several loans with varying interest rates. Some interest rates are also incredibly high.

Several loans and credit cards with these high interest rates often produce financial problems. A debt consolidation loan aims to reduce the interest rate charged, meaning the overall amount owed is also significantly reduced. In addition, a consolidation will mean only one loan needs to be repaid making it a more convenient way to organise finances.

One of the best ways to reduce monthly loan repayments is to consolidate all debts into a mortgage, ie. a refinance. If large amounts are owed in personal loans and credit cards and there is sufficient equity in a home, then this is a must in order to improve a financial situation. If the total amount owed on loans and credit cards is less than around $15,000 to $20,000, a re-mortgage is not ideal, unless the mortgage is small (under $100,000).

For those without an existing mortgage, debt consolidation is recommended as well. Debt consolidations can often result in monthly repayments being reduced by several hundreds of dollars.

In order to qualify for a standard loans consolidation several criteria need to be met. Regular monthly loan repayments are required, the person consolidating should have no large defaults on their credit file, and they need to be employed (full or part time). The strength of a loan application will depend on the above requirements. It is possible to consolidate secured and unsecured debts into a single loan.

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