7 Benefits of a Debt Consolidation Loan

We’ve figured you probably heard from us enough times to know what we are talking about when we say, “Somethings are just better together.” Yes, we say it a lot, so we thought, it’s about time we give everyone an update as to why “it’s just better.” Debt consolidation loans can be the handy tool to help sort out our financial burdens. So here are seven ways in which getting a debt consolidation loan can benefit us.


Easier to Manage Payment Deadlines

A Debt consolidation loan combines all your debts into one lump sum meaning you only have to worry about the one regular payment. Consolidating your finances, whether it be your credit card payments, car loan payments, dental payments or vehicle repair costs, will mean you no longer have to keep track of when every single one is due. Putting them into one lump sum will allow you to manage your required payment more efficiently.

Lower Interest Rate

The problem with having multiple smaller debts is the fact that each debt will have interest added each month to your total debt amount. We could see personal loan rates of around 29.95% p.a. or even multiple credit card rates of around 24.95%. It gets even worse as well if we miss a payment and we have to have extra interest compounded on the next month due to the missed payment. A debt consolidation loan means you get to focus on one interest rate, which is lower too since it’s a larger amount. For example, NZCU South offers debt consolidation loans beginning at 8.9% p.a. A debt consolidation loan could be the tool to save you from spending more money on steep interest rates.

Less Risk of Collateral Repossession

An excellent way to get lower interest rates on your loans is to offer an asset up as collateral. Offering collateral works great if we can manage regular payments. But if we can’t handle our payments, we could find ourselves being contacted by collection agencies and having our asset repossessed. This process is not fun for anyone, and it is something we should all try to avoid. This is where a debt consolidation loan comes in handy as we only have to offer the one asset up as collateral. Let’s save ourselves the risk of having multiple collection agencies at our door and instead just have the one. Or none, we think having none would probably be for the best.

Having a Regular Fixed Payment Amount

A debt consolidation loan helps us manage our finances better by having the same payment amount every month. We will no longer have to suffer from bill shock at the end of every month as we will know what amount is expected. Having a regular fixed payment amount makes budgeting so much more relaxed as we can put the same amount of money away each month to cover our loan repayment amount.

Stress Reduction

Now, this benefit might not at first impact us financially, but it can do so in the long run. Most of us don’t operate well under stress, and it can cause us to take the wrong course of action. Have you ever been stressed out and reached a goal/milestone, only to then reward yourself and reverse everything you have done? We feel like we have all been in that situation. Regarding financial matters, this could be treating yourself to a shopping spree after finally paying off your credit card. Being relieved from stress can cause us to celebrate, so the trick is not to let there be any stress in the first place. Save yourself the pressure of having multiple payments and interest rates and simplify your finances.

Less Monthly Expenditure Gone to Debt Repayment

The purpose of a debt consolidation loan is to make repayment of the loans more manageable. The debt consolidation loan does this by combining our existing payments into one and then further extending the tenure of the loan so that the monthly repayment amount is less. You still pay out the same amount, but you do it in smaller amounts over a slightly longer period of time with a much lower interest rate. So it works out to be a much safer and more manageable way to pay off your debt.

Can Improve Credit Score

Lastly, making sure we maintain regular payments can improve our credit score. Failing to make a payment or having one fall late can negatively impact our credit score, meaning it may be more difficult to borrow in the future. A low credit score could mean increased interest rates or even affect our ability to get a loan in the first place. Having our credit score impacted is why it’s best not to take risks with our finances, and this is why we should try to make sure we are in a position to manage our funds.

If you believe a debt consolidation could be the right tool to help you simplify your money management, you can apply online with your trusted credit union.

If you wish to find out more about debt consolidation loans and what they can do for you. Check out our debt consolidation page for information and FAQs.