Individuals in Victoria may have the ability to use a debt consolidation loan to address their debt problems. The basic premise of these loans is to take out a larger loan at a lower interest rate to pay off high interest rate debt.
The larger, lower-rate debt consolidation loan means consumers pay one monthly payment to the lender rather than paying multiple payments on several credit cards, loans, and other forms of debt. The lower interest rate means the consumer saves money over the term of the loan and also lowers the amount of interest or possible penalties and fees paid over time.
A debt consolidation loan is a good option if the consumer qualifies for a large loan, can get a low interest rate, and can ensure all monthly payments on the loan are made in full and on time. However, there are also some potential pitfalls to a consolidation loan that should be considered.
Interest Rates and Costs
Some consolidation loans from lenders in Victoria may have a fee that is required at the time the loan is approved. Additionally, the interest rates on these types of unsecured loans are not always lower than existing interest rates on the debt. It is important to do the math and consider the big picture before determining if this is the best option.
Avoid Adding to Debt
Without changing spending habits, it can be easy to add to debt after the consolidation loan. This creates additional payment needs that can quickly add up and derail the repayment plan, leaving the individual or couple with more debt.