Debt consolidation is a popular way to dust off debt, says SocietyOne


Do you feel like your multiple debts have gotten a little messy lately? Well, it might be time for some spring cleaning!

Managing multiple debts can be tricky, from paying back an auto or personal loan to paying off your credit card. But this is exactly where a debt consolidation loan can make life a little easier (and probably cheaper!)

But is debt consolidation really that popular? To put it simply, yes they are.

According to online personal lender SocietyOne, about half (50%) of the loans they take out each month are used for debt consolidation purposes, with the average loan being around $ 20,000.

Nicole Avery, SocietyOne’s chief marketing officer, explains how it all works.

“Suppose you have a credit card (or some of them), loyalty cards, and maybe an existing car or personal loan. Not only does it take a lot of time and effort to make sure you repay all of this on time, but you can also pay a lot of interest on each debt, ”she says.

“Debt Consolidation Loans are used to turn all of this debt into one easy-to-manage payment. Not only could this save you a lot of administrative time, it could save you thousands in interest and help you pay off your debts faster. ”

Want to Compare Debt Consolidation Loans Now? Check out these top options …

How Much Can I Save With a Debt Consolidation Loan?

That depends on a number of factors like your current debts, interest rates, your repayments, etc.

Mozo banking expert Peter Marshall says that by consolidating debt, consumers could end up cutting their interest payments significantly.

“The truth is that credit card rates have stayed high over the years, and while personal and auto loan rates have decreased slightly, if you pay off a longer loan, you may not get a competitive rate,” he says.

“More and more Australian personal lenders are now offering debt consolidation loans. By opting for a low interest rate debt consolidation loan, borrowers could pay less interest over the life of the loan than paying their debts separately. ”

Currently on the Mozo database, the average personal debt rate is as follows:

  • Credit card: 16.88%
  • Unsecured personal loan: 9.74%
  • Secured personal loan: 7.25%
  • New car loan: 6.14%
  • Used car loan: 6.64%

With that in mind, let’s look at this scenario …

Say you have Debt worth $ 20,000. You owe $ 12,000 on an unsecured personal loan at 10% interest and $ 8,000 on two credit cards ($ 5,000 at 20.00% and $ 3,000 at 12%).

Right now, you would be paying $ 674 in interest every month on each repayment, and a total of $ 4,191 in interest over three years.

However, if you opted for a three-year unsecured debt consolidation loan with an 8% interest rate, your one-time repayment would end up costing you $ 632 in interest every month. Over the life of the loan, you would end up paying $ 2,762 in interest $ 1,429 less than keeping your repayments separate.

And if you grab a consolidation loan with an ever lower interest rate, you can end up saving even more.

“Saving interest can mean the difference between keeping hundreds, if not thousands, of dollars in your pocket instead of in the hands of a lender,” says Marshall.

“In addition to a low interest rate, it’s important that consumers remember to weigh things like annual or monthly fees as well as repayment features that allow them to settle their debts sooner, which could save them even more money on interest repayments.”

Will a debt consolidation loan affect my credit score?

Like any other type of loan, such as a personal loan or credit card, a debt consolidation loan can have an impact on your credit score. But whether that’s positive or negative is up to you and how you pay off your debt.

“When you apply for a loan, the lender will most likely do a credit check on your creditworthiness,” says Avery.

“This can lower your credit score at first, but if you keep an eye on your regular repayments you will find that your credit score can actually improve over time, especially if you don’t apply for additional credit before paying off the debt. ”

Hence, it is important that you always make your debt a priority when it comes to your finances. By doing this, you not only improve your credit score, but also increase your chances of getting approved later or getting a lower interest rate.

Want to Learn More About Debt Consolidation? Switch to our Debt Consolidation Hub for more information and more top lenders!

* WARNING: The comparison rate combines the interest rate, fees, and lender fees into a single rate to show the true cost of a personal loan. The comparison rates shown are calculated based on a loan of $ 30,000 for a period of 5 years or a loan of USD 10,000 for a period of 3 years as specified, based on monthly principal and interest payments, on a secured basis for secured loans and an unsecured basis Basis for unsecured loans. This comparative sentence applies only to the example or examples given. Different amounts and terms lead to different comparison rates. Costs such as redemption fees or early repayment penalties as well as cost savings such as fee exemptions are not included in the comparison price, but can influence the cost of the loan.

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