Have you recently found yourself in a state of stress about your finances? Maybe you’re juggling several high-interest credit cards or loans, and keeping up with multiple repayments and fees has left you wondering if you’ll ever get on top of your debt.
You may have considered rolling all of your debts into a single personal loan to help you stay ahead of repayments and hopefully eliminate your debt sooner. If so, you’ve likely heard of the term debt consolidation.
But what exactly is a debt consolidation loan? And how does it differ from a personal loan? Is one better than the other at helping you get out of the debt spiral? In this post, we’ll explore the intricacies surrounding personal loans vs. consolidation loans and how you can effectively use debt consolidation to help you get on top of your debts — fast!
Debt consolidation vs. personal loans — what’s the difference?
On a practical level, there is actually no difference between a debt consolidation loan and a personal loan. A debt consolidation loan is a personal loan taken out to combine existing debts. When thought of like this, we can see that debt consolidation is simply one of many reasons people may take out a personal loan.
If you’re dealing with several high-interest debts, consolidating these debts into a single competitive-rate loan with just one repayment per month can be a smart move. It will not only help you save money on high-interest rates, but it will also help you get out of debt sooner.
Debt consolidation loans
As explained above, a debt consolidation loan is simply a type of personal loan used to integrate debts. Debt consolidation affords you just one easy-to-manage loan, with one repayment per month. In addition to this, you’ll only have one set of interest rates and fees to contend with — not multiple.
Generally speaking, a debt consolidation loan is ideal for consolidating unsecured loans (loans without collateral) or debts such as payday loans, personal loans, credit cards, retail store cards, and even medical debts. The great thing about debt consolidation is that it allows you to focus your efforts on decreasing your overall debt level rather than simply juggling debts each month.
Personal loans
A personal loan is a loan that can be used for different types of personal expenses, including holidays, home renovations, or debt consolidation. Personal loans are generally unsecured, with the lender opting to review your creditworthiness and ability to repay the loan rather than requiring a form of collateral as security.
As well as traditional banks, online lenders and credit unions offer personal loans, and they can range in amounts — from several hundred to several thousands of dollars. You’ll likely need to specify the purpose of the personal loan when applying, as some lenders have limitations on what the loan can be used for.
Which is better — a personal loan or debt consolidation loan?
Is it better to get a personal loan or debt consolidation? Debt consolidation loan is a type of personal loan. So the most important thing you can do when shopping for a loan for debt consolidation is to find a lender who will not only provide you with a suitable loan amount and timeframe but will also offer a competitive interest rate. Depending on your credit standing, debt consolidation loans may come with a lower interest rate than personal loans taken out for other reasons, which could ultimately help you save money over the term of the loan.
How can I get approved for a debt consolidation loan?
This differs between lenders, but to be approved for a debt consolidation loan in Australia, you usually need to be 18 or over, have had a regular source of income for the past 90 days, be an Australian citizen or permanent resident, be directly contactable via phone and email, and be registered for online banking. You’ll also need to provide appropriate identification, as well as payslips and bank statements.
Can I get a debt consolidation loan with a bad credit score?
A bad credit score won’t necessarily prevent you from obtaining a debt consolidation loan — if your lender believes that you have the capacity to make future repayments. In general, debt consolidation loans are offered to help people get out of the cycle of bad credit, so it’s important not to let a bad credit rating prevent you from applying for debt consolidation.
How debt consolidation can help you get out of the debt cycle
Unfortunately, it doesn’t take much to get caught up in an ugly cycle of debt. “Simple” purchases, over time, can all too easily compound into mountains of high-interest and unmanageable debts. Getting on top of these debts can seem like a hopeless task, with no end. But, there is a way out.
With a debt consolidation loan, you’ll gain a sense of control over your finances and debt by:
Saving money on multiple high-interest rates and loan/credit fees
Managing just one repayment each month
Whichever way you look at it, debt consolidation is an effective strategy for helping you get out of debt sooner, and regain a sense of financial freedom, now and into the future.
Making debt consolidation easy
At Salt & Lime, our aim is a simple one — we’re here to help you get rid of debt, fast. We know how easy debt can accumulate and the stress it can place on both individuals and families.
This is why we offer a simple, transparent debt consolidation loan. With Zesty, you’ll enjoy an easy application process, no fees, competitive interest rates, and quick service. What’s more, we offer further discounts for successfully completing our online learning modules. Interested? Be sure to read our informative blog posts or contact us to get started today.