If you’ve found yourself with a couple of different debts or feel like there’s no clear pathway out of the red, a debt consolidation loan may be a way to manage this by allowing you to bring all your debts together to create a single repayment plan.
Whether a debt consolidation loan suits you really depends on your circumstances, so it’s important to know exactly how it works before starting your journey out of the red and into the black.
1. Brings all your debts together
The idea behind a debt consolidation loan is that it’s enough for you to repay all your current debts – this can be from things like credit cards, store cards or other personal loans. By consolidating all your debts into one you may be able to save on administration fees and possibly also on the interest rate. You’ll only have to make one regular repayment, which can help you manage your cash flow better.
To start, figure out exactly how much you owe across your debts so you know how big your debt consolidation loan will need to be. You can use a budget planner to calculate how much you can afford to repay.
Don’t stretch yourself too thin. While it’s great to pay off your debts as fast as possible, your budget needs to be realistic so that you can stick to it.
2. Outlines a repayment schedule
Consolidating your debts reduces the number of repayments you have to make and can give you a clear schedule of repayments. With a CommBank personal loan you can choose the frequency for which you make repayments – weekly, fortnightly or monthly – so that it matches your pay schedule. Setting your repayments so that they’re due soon after you’re paid can help reduce any temptation to spend that money elsewhere.
3. Puts an endpoint in sight
Having one loan for a set period of time, rather than multiple loans with multiple timeframes, means you’ll have a clear end date for your repayments. This can be a good motivator to pay off the debts.
With our personal loan repayments calculator you can figure out roughly how long the life of a CommBank loan would be, given how much you need to borrow and how much you can afford to repay.
Things to think about
If you’re feeling overwhelmed by your debts, the last thing you want to do is increase them. So before you take out a debt consolidation loan, it’s important to be certain you’ve stopped spending more than you earn. If you haven’t, another loan may only become a bigger burden.
It’s also important to remember that no two loans are the same. Ideally you’ll be paying less in interest by taking out a debt consolidation loan. If you’re not, ask yourself whether the benefits of only having one debt are worth any extra cost. Be honest when assessing the situation – this will give you the greatest chance of success.
If you need further help, look for assistance where possible. The Department of Human Services can help you find out what services are available for you.
If you’re a CommBank customer, you can call us on 13 3095 or request financial assistance in NetBank if you are behind, or think you are likely to fall behind, in paying what you owe. See more about our support options – including our Financial Assistance Solutions teams who are here to support you in getting back on your feet in times of financial difficulty.