The Benefits of Debt Consolidation: Simplify Your Finances

Managing multiple debt repayments can be like conducting a symphony orchestra with each instrument playing to a different beat. It's not only challenging, but can also lead to a cacophony that's hard to make sense of…

But what if you could harmonise all these different elements into one cohesive melody? That's where debt consolidation comes into play. Let's delve into the benefits of consolidating your debts and some potential risks and considerations you should keep in mind.

Benefits of debt consolidation

There are lots of reasons that consolidating debt can be helpful.

Simplified finances

Instead of managing a number of different loans and repayments, you may only have to think about one consolidated debt. This can make managing your household budget easier by reducing the number of accounts you need to track and pay.

Low interest rates

Depending on the rate you’re paying on your existing debt, you may be able to get a debt consolidation loan at a lower rate than you are currently paying across your existing debts. We can help you look at your options.

Improved credit score over time

If you’ve got behind on some of your payments or are at risk of it, consolidating the debt may help you bring those past-due accounts back to being current. If you then meet your payments on time, your credit score should improve over time.

Potential to pay off debt faster

Streamlining your payments into one loan may help you get rid of the debt more quickly, particularly if you’re able to pay off your car loan faster by putting more money into the principal each month.

How debt consolidation can harmonise your financial life

Juggling multiple loans means dealing with various interest rates, monthly payment amounts, and due dates. This discord can be a recipe for confusion and sometimes missed payments, which could negatively impact your credit score.

Debt consolidation can simplify this financial ‘symphony'. In many cases, this means combining multiple debts into a single loan, often leaving you with one lender, one interest rate, and one monthly payment. You may also choose to combine some of your debts and leave out others, for example, if they're on very low interest rates or you don't qualify for the amount needed to consolidate all debts.

Whatever you decide to do, debt consolidation is all about simplifying debt management and getting a clearer picture of your financial standing.

Unlock potential savings

Here's an additional high note: debt consolidation could potentially reduce your total interest costs. By consolidating some or all of your different debts into a loan with a lower interest rate and the shortest term you can afford, you could pay less in interest than you would have with separate debts.

If you'd like to understand if debt consolidation is for you, you can use our Debt Consolidation Calculator to run your numbers. 

A clear repayment timeline

Rather than having different payment dates and repayment schedules happening at once, with a debt consolidation loan, you often only have one monthly or fortnightly payment date and one loan term.

Once again, you don't have to consolidate all your debts. But even consolidating some of them may allow you to see a clearer endpoint to your debt repayment journey. And knowing exactly when you'll be debt-free can provide comfort and motivation, encouraging you to stay on track.

A word of caution

While debt consolidation can be a helpful tool, it's not a magic wand. Consolidating debts might extend the repayment period, potentially resulting in more total interest paid over time, even if the interest rate is lower. That's why, as we said, it's important to choose a loan term that gives you affordable regular payments while keeping interest costs to a minimum.

Also, remember that debt consolidation is a method to manage your debts more effectively, not a green light to accumulate more debt. After consolidating, it's crucial to resist the urge to take on more debt.

Your debt consolidation loan won’t solve any underlying financial issues that you might have, but it may offer some temporary relief. If there’s a bigger problem to solve, it’s a good idea to think about ways to address that, perhaps with some expert help from someone like a financial mentor.

Your credit score, income, and other factors can influence your eligibility and the interest rate you'll receive on a consolidation loan. Not everyone qualifies for a lower rate, so if you need to improve your position, it's a good idea to do so before consolidating. If you miss payments on a debt consolidation loan, you could damage your credit score.

There are also likely to be fees involved that you’ll need to consider.

The bottom line

Debt consolidation can simplify your financial life, potentially reduce interest costs, and provide a clear repayment timeline to work towards becoming debt-free. However, it's not a universal solution. Your unique situation and goals should guide your decision on whether debt consolidation is right for you.

At better finance™, we're here to help you find the right solution for your needs. Explore our debt consolidation options and start your journey to financial harmony.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.