Debt consolidation is a way you can bring a range of loans together into one account. This allows you to pay off all of your debts using one big loan rather than trying to keep track of several smaller loans, which makes it easier for you to keep track of your payments. Let’s take a look at how debt consolidation works in a hypothetical example.
Billy, 28, a plumber, and Jamie*, 32, a teacher, were finding it increasingly hard to keep on top of their financial obligations. When they became a couple, Billy had a $5,000 car loan, which he was paying off at $100 a month. Jamie had a $2,000 credit card debt she was paying $40 towards each month. Together, they had taken out an $18,000 personal loan to help pay for their wedding, paying $360 a month. Every month they were paying $500 to cover their debts, with no end in sight as to when their debts would be paid off given interest was continuing to accrue on these balances.
So they shopped around by checking out debt consolidation options and interest rates at ClearScore, applied for one through the Beyond Debt facility and were approved. This has given them a great financial foundation. By consolidating their debts, they are able to pay off their loan within five years and be completely debt free.
Managing all loans in one place
As seen in the example, by consolidating your debts you don’t have to worry about managing multiple debts with different due dates. You will only have one account to remember to pay each month. According to Beyond Debt’s loan consolidation calculator, Billie and Jamie pay $594.75 a month to clear their debt completely within five years, paying off a balance of $35,684.90 over the life of the loan. They have also now stopped adding to their debt, especially their credit card debt, and can also put money aside to go towards the deposit for their dream home.
Pay off all loans more efficiently and conveniently
By combining all of your debts into one loan, you are also more easily able to pay off your loans and less at risk of missing or defaulting on a repayment. This could potentially positively impact your credit score, which could make it easier for you to take out a home loan down the track, or mean you pay a lower interest rate than you need to.
Improve your credit score
We all know the importance of a high credit score, as a higher credit score means more successful applications. So it is vital to keep track of how your credit score isand seek out ways to . One possible way of improving it is through debt consolidation. By handling multiple loans at once, the chances of missing a payment or defaulting is higher, so putting them altogether in one location makes it easier to keep track of payments, therefore increasing your credit score.
Disclaimer: This is a hypothetical example only. Interest rates and amounts payable on different loan products including debt consolidation loans will depend on the individual’s circumstances.