• Debt consolidation loan information by Way Forward. Couple sitting on the floor of home looking happy and relaxed.

Way Forward offers repayment consolidation as part of our service to make managing your debts easier. This means that we negotiate repayment plans with your creditors and take one payment from you that is then distributed to your creditors. You still hold those debts. We are not a debt consolidation service.

The information provided here is not financial advice. We recommend you speak with a financial counsellor or local community legal centre to find out what options might be available.

 Debt Consolidation

What is debt consolidation?

Consolidating debt typically means rolling all your debts – personal loans, student debt, credit card, store cards and other forms of borrowing – into one debt. People will consolidate their debts from multiple to one debt to simplify their repayments with one simple payment and/or to swap multiple higher cost credit facilities to one cheaper debt.

Everyone’s circumstances are different so it’s important to not just understand the benefits but also the risks. The Federal Governments MoneySmart website has basic information and we advise contacting your local Community Legal Centre or a financial counsellor before taking these steps.

If you are offered a consolidated debt, ensure that this is a consumer debt rather than business debt.

If you do make the decision to consolidate your debts, ensure that you do so through a reputable financial institution. This means that the business is licensed, which you can search on ASIC Connect’s Professional Registers on one of the following three lists:

  • Credit Registered Person
  • Credit Representative
  • Credit Licensee

What is a debt consolidation loan?

A debt consolidation loan combines all your debts into one personal loan with one lender. Lenders may offer you this option because this means all of your debts will then be transferred to them and they will receive the interest from those repayments.

Even though your debts may be consolidated in one loan, you still need to repay the full principal amount owing on all of the loans but these are now taken out as one payment

Is it a good idea to consolidate your debt?

It depends on your circumstances. Always remember that the benefits can sound good, but you need to understand the risks including the new arrangement terms, credit reporting and credit scoring. We recommend that you seek advice about the best option for you. This might be from a financial counsellor or your local Community Legal Centre.

ProsCons
Pay once, instead of multiple times each month. Using a single personal loan to pay off your debts and interest on those debts to make one repayment over a fixed time period can make managing your debts easier.You will possibly increase your overall debt. Consolidating debt provides more opportunity to access credit or the temptation to reuse credit cards that have now been cleared through a consolidation loan. This can mean more spending and as a result accumulating even more debt than you started with.
Having a fixed interest rate and terms. This can mean your repayments are consistent and predictable which helps with planning and budgeting. However, ensure that you commit to a repayment amount that is realistic to pay off. It can cost you more overall. A personal loan with a longer term can help you reduce your monthly repayments, however, a longer loan term means you’ll pay more interest and spend more in the end.
Can reduce your monthly payments. By extending the length of the term on your personal loan means your monthly repayments are smaller, but remember the catch is the longer it takes the more you will end up paying in interest.Negatively impacting your credit score. If you don’t keep up with the monthly repayments on your personal loan, you could damange your credit score or end up in financial hardship.

Do consolidation loans hurt your credit score?

Credit scores are based on credit behavior over a longer period so consolidating loans are unlikely to improve your credit score in the short term. However, if setting up one simple payment helps you make all of your payments on time it will help your credit score over time.

What are the risks of debt consolidation?

The National Debt Helpline provides useful information about the risks of debt consolidation. Generally, consolidating debts means they may take longer to repay and may cost more to pay back over the lifetime of the loans.

There can be hidden fees, charges, and interest rates. If you are consolidating your debts this can mean that only one lender is holding the loan, which means they can determine the conditions of any further loans or changes to those loans, should you need to renegotiate.

Which banks offer a debt consolidation loan?

Most of the major banks and small to medium lenders will offer debt consolidation loans.

How Way Forward can help with debt consolidation

Way Forward helps with payment consolidation but not debt consolidation. We negotiate repayment plans on your behalf with your creditors and then group all of these into one payment that we take from you and then distribute to your creditors.