How Debt Consolidation works

What is debt consolidation?

Debt consolidation is a simple process of combining multiple, often high-interest debts into a single, lower-interest loan. It is a way to help pay off debts more easily. Instead of re-paying many organisations an amount plus varying interest rates, the borrower will pay one financial organisation. Allowing greater control and management of your debt. Applying for a debt consolidation loan will require the borrower to complete an application online with details of current income, expenses, assets and debts. Our debt consolidation calculator is a useful tool that can be used to determine how much you could afford or how much you could save with NZCU South.

Who is a debt consolidation loan for?

Debt consolidation is for those who seek to refinance various debts into one easy-to-manage loan. For those who seek to organise their finances better. For those who want to take control of their financial situation. For many, who may struggle with too many commitments find debt consolidation can de-stress their lives.  By consolidating debt the borrower now deals with one organisation and one repayment instead of dealing with many organisations and multiple payment streams. It is advisable to only consolidate debts that have a high-interest rate rather than low-interest loans or loans that have almost reached maturity – are almost repaid. In a general sense debt consolidation covers unsecured personal debt. Personal loans, credit cards, store cards are common examples of debt that can be better managed through a debt consolidation loan.

Taking control

Applying for a fixed rate personal loan will allow you to pay off high-interest debts leaving you with the obligation to make regular payments over a fixed period. Which option is right for you depends on the amount of debt you have, your current interest rates and your budget to repay it. The relief of having your finances under control helps focus on the important things in life. Financial stress can affect all areas of people’s lives from work to play. Getting assistance to consolidate debt and change spending habits can help people achieve their financial and lifestyle goals.

Improve credit history before applying for debt consolidation

Lenders will request a copy of your credit history and records when you complete a loan application. If you believe your credit profile needs some work, you can make steps to improve your credit score by checking out; Steps to improve my credit score Am I ready to apply for a loan? Loans with bad credit, are they worth it?

Changing spending habits

Debt consolidation is a great option.  However, it is not a magic solution to resolve your issues with debt. Are you addressing the underlying problem? That is, your spending habits? Debt consolidation won’t necessarily change your spending behaviour that was the cause of generating debt in the first place. Before making the call to consolidate your debt, be sure to address your spending habits – if this is the root problem.

Is my credit score going to be affected by debt consolidation?

If you pay all your existing debts and make regular on-time payments on your debt consolidation loan then your credit profile will not be negatively affected. Now you need a strategy to avoid building up more debt. Avoid using credit cards as much as possible. Perhaps even consider cancelling your credit card. Set a personal budget.

Final say

Understanding how debt consolidation works is key, before you can take advantage and experience the benefits debt consolidation has to offer. As previously stated, debt consolidation is not a magic, all-for-one solution to your debt management woes.
When used effectively debt consolidation can be the debt management answer, provided the borrower fosters a more disciplined approach to their financial management.