If you have several debts, maybe spread between loans and credit cards, and you’re struggling to stay organised and on top of your payments each month, then a personal loan to consolidate your debts may be the answer. You’ll end up with just one payment to make each month, rather than having to juggle all the different creditors. The biggest benefit of a consolidation loan, however, is that you’ll probably have a lower interest rate. Many people who find themselves with several debts sometimes have tough decisions to make each month; which debt do they pay and which one do they have to pay late? Having a lower interest rate can be a huge help. When you consolidate your debts, you could find some loans have early repayment fees, so you have to take these amounts into consideration. There are several types of debts that can be consolidated. Personal loans Personal loans are among the most common types of debt to be consolidated. If you have at least two personal loans, or a personal loan and another type of debt, then you can consolidate them. It’s even possible to refinance an individual loan to a lower interest rate. Some personal loans have early repayment or pay-out fees. Check this out before you do anything. Credit cards If you have a large balance on your credit card, then a personal loan can give you a better interest rate to help you to pay the amount off sooner. Consolidation can really help if you weren’t able to find a balance transfer, or if you have a large credit card balance and several smaller debts. Other types of credit accounts Some consolidation loans will take in other forms of credit accounts, like utility bill debts or private loans. You can shop around to find a provider that can help you with these, as not all do. How to consolidate your debts If you’re planning to consolidate debts, here’s what you need to do. Work out how much you need to borrow to pay off your various debts and meet the fees or early repayment charges that you may face. Don’t forget to include these fees, because if you don’t have the cash or finance ready for them, you won’t be able to get your consolidation loan. Look for and compare the personal loan offerings to find your ideal fit. Apply for the loan. Pay off your various debts, and fees, with your funds. Pay your new loan at your new, hopefully lower, interest rate until the balance is cleared. What you need to think about before going ahead with consolidation Can you afford the new loan? You need to be certain that your new loan is going to be cheaper, even with the extra amounts for the fees, and that you can continue to pay it. You can use the InfoChoice personal loan calculator to work out repayments and total cost of a loan over time here. Can you afford the early repayment charges and set-up fee? If the fees involved tip your new loan into unaffordability, then you might need to rethink and get debt advice. Is your new lender legitimate? You need to make sure that your loan provider is ASIC–licenced and can actually operate in Australia. It’s unlikely you’ll hit upon an unscrupulous provider, though, especially if you use a trustworthy comparison site. Once you have your consolidation loan, here’s how to make the most of it: Create and stick to a budget so you meet your monthly repayments. Make extra payments throughout the month, even if they’re just a few dollars. Search for money–saving tips to free up more cash, and. Try to avoid spending money on any credit cards that you may still have. The pros and cons of debt consolidation The benefits of a consolidation loan include the lower interest rate and the fact that you’re only making one payment each month. If you’ve been getting phone calls and late fees from your old creditors, these will stop. However, if you fall behind on your payments, you’ll only be increasing your debt. You might also find that the fees and charges involved in setting up your consolidation loan are quite steep. Should I approach my existing lender for a consolidation loan? Going to your current bank can be a good idea because it already knows you and your circumstances and can see what your income and outgoings are. However, there may be better deals out there that mean lower repayments each month. This is why it’s always best to shop around to see if your own bank is actually offering you your best option. Whatever you decide, talk to the provider before applying to assess your eligibility. Is it possible to consolidate more than one credit card? Yes you can. Having two or more credit cards with different providers can get confusing quickly, especially if you’re struggling. The different interest rates and payment dates can easily lead to missed payments, or you may occasionally have to “sacrifice” one smaller payment in order to make one of the bigger ones. This is why bringing them all together under one new loan with a more favourable interest rate can be a huge relief. Is debt consolidation the same thing as a debt agreement? No, a debt consolidation loan is a regular personal loan that pays off two or more (or occasionally just one large) outstanding balance. This balance can be a credit card, an older loan or a combination of various credit balances. If you’re looking for a consolidating personal loan bad credit might prove to be a barrier, so a debt agreement may be your next step if your debts are large enough. A debt agreement is most often used by someone with significant unsecured consumer debts who is having problems servicing them. It helps the person, who may have a bad credit rating, and their creditors find a resolution. A debt agreement can be expensive and have an effect on your credit rating, so make sure you understand what you’re getting into before you sign anything. Compare debt consolidation loans from Australia’s major banks, credit unions and other lenders here. The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.