Getting smart with better debt management

Each year an average of 30% of Australians commit to paying down their debt by making it their new year’s resolution.

As with the majority of new year’s resolutions, most are soon pushed aside and forgotten about.

So how can you make this a reality?

It may seem contradictory, but borrowing money via a personal loan may be one way to drag yourself out of the quagmire of crippling debt – but only if the strategy is used sensibly.

We offer five smart reasons to consolidate your debts:

1. Take advantage of a lower interest rate

If you have two or three credit cards, and a personal loan or two then it’s likely that they have varying interest rates. Many people are barely able to cover the interest payments on some of these debts while juggling their monthly payments.

A personal loan with a manageable interest rate will keep your interest payments under control, while also allowing you to pay off some of the principal to further reduce your interest amount.

2. Reduce the number of annual fees

Credit card issuers will often attach an annual fee to their credit cards, which can add up to a few hundred dollars if you have more than one. Many issuers will offer credit cards without annual fees to attract new customers.

Consolidating your credit cards into one loan can potentially save you a few hundred dollars each year, which you can use to pay down your debt even further. Make sure you do the math and read the fine print first, as there may be hidden fees you haven’t considered which could make the whole exercise pointless.

3. Improve your credit rating faster

If you plan to secure a mortgage for a property an excellent credit rating is a necessity. Smart consolidation of your loans may help you get on the fast track to a better credit rating.

Rather than trying to handle each debt on its own, a single consolidating loan will help you make prompt, regular payments. Seeing borrowers sticking to a schedule is always a positive sign to lenders that you are responsible with your money.

4. Consolidating loans can save you from bankruptcy

When you feel like you’re buried in debt, bankruptcy may seem like it’s the only way forward. However, bankruptcy is a glaring entry on your credit rating which will severely hinder your efforts in the future should you ever need to apply for finance, or further your career.

Bankruptcy can mar your credit rating for either five years from the start of the bankruptcy or two years from when it ends – whichever is sooner.

You may also be prevented from working in some trades or becoming a director of a company when you have a bankruptcy on your record.

5. Shorter repayment periods

Having one loan to pay off rather than five or six helps you get control over your financial future. The money you can save on interest and fees every month will enable you to pour more money into the debt and further reduce the amount you owe.

While debt consolidation is a viable option for many people, it does take discipline, and you do need to have the right loan for it to make financial sense. And that’s where a great local mortgage broker can help you out.

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