3 reasons why debt consolidation can help you reduce your debt

Debt consolidation may help you reduce your debt and help you eliminate your debts within a relatively short time-frame. Debt consolidation is the process of consolidating all your debt (for example, credit card balances, overdrafts, store cards and so on) into one single personal loan, giving you one easy, manageable payment to meet on a monthly basis. You can do this using a debt consolidation loan.

Debt consolidation can:

• Reduce the amount of time your debt is paid

• Reduce the amount of interest you are paying

• Ensure that each payment reduces a large amount of your principal debt

Reduces the amount of time the debt is paid

When you only make the minimum monthly repayments, you are only prolonging the debt cycle. The problem with high interest rate debts is that only a small percentage of your payments actually go toward reducing your principal. However, with debt consolidation you can choose the term that the loan is paid in, for example, 3-5 years. If possible, you should choose the shortest term available in order to receive the most significant savings. Although your monthly payments may increase, the interest you pay is reduced drastically.

Reduces the amount of interest you pay

Through debt consolidation, it may be possible to:

• Reduce the amount of interest you pay

• Reduce your interest rate

• Reduce the amount of time that it takes for you to pay off your debt

The benefit of debt consolidation is that you are able to take all your multiple debts and consolidate it into a single low interest debt. Debt consolidation can allow you to halve your interest liability. For example, most credit cards and overdrafts often charge in excess of 15-20% interest, but the interest charged on a debt consolidation loan is significantly lower.

Each payment reduces a large amount of your principal debt

With a reduced interest rate, you can start to focus on reducing your actual levels of debt, as a greater percentage of your monthly repayments now go towards repaying the principle.

If managed correctly, debt consolidation is one of the most effective methods of reducing debt, as it allows you to pay less interest, reduce the term of the debt and look forward to a debt free future sooner.

If you need to consolidate debt or need help with budgeting, please speak to one of the finance advisors at Intellichoice today on 1300 55 10 45. Alternative, you can also use the budget planner to get started on savings.