There are essentially two types of Centrelink loans available and multiple options within these two…
Are you struggling with debt and considering a debt consolidation loan? Depending on where you look you and which companies you speak to, you will most likely hear a ton of conflicting advice. In most circumstances, debt consolidation companies will only provide you with the benefits of debt consolidation, leaving out the negatives.
In many cases, those who are in need of debt consolidation help are dealing with serious financial issues. This can put them in a vulnerable position when speaking to sales people of loan consolidation companies. It is extremely important to make rational decisions when entering into any type of agreement or contract – you must understand the costs involved and penalties.
Debt consolidation can be a good solution for some, but depending on your circumstances, it can be a poor choice that can land you into more debt.
How to find a loan consolidation company
Numerous loan consolidation companies out there operate under many different business models – budgeting companies, debt companies, bad credit companies, bill payment companies and more. All provide different takes on loan consolidation or debt elimination. The key in picking these companies is to do your own due diligence and not get caught up in a sales pitch.
Below are things to look at when picking a company to work with
- Do an online search on company reviews and complaints (search for both)
- Speak to a free unbiased professional financial counsellor first
- Look for companies that don’t charge
- Ask for all costs in dollar figures (not percentages)
- Ask for and be clear on all negatives of the service, potential consequences…such as bad credit
Below is more information on when you should actually consider loan consolidation. You may find that loan consolidation is not the best option for you.
When to Consolidate
Generally, it is good to consolidate your multiple outstanding loans if you can lower your monthly payments and lower your overall interest obligations without extending the terms. If you are having trouble paying off multiple credit cards, a car loan or personal loans, a consolidation loan maybe the right choice. This can be true especially if you are paying a higher rate on the individual debts than you would pay on a single consolidated loan including additional fees, commissions and charges.
This is an important point. Many consolidation lenders do not always offer the right answer, as they may charge high admin fees, annual fees, penalty fees and other costs, which may offset the lower rate they provide. Before you consider a debt consolidation loan, speak to a free financial counsellor in your State or Territory. Their services are free of charge and they can ensure that you are engaging in a service that will benefit you based on your needs and circumstances. Many people think that loans are the only or the best option for getting out of debt, but there are other debt eliminations options available.
When not to Consolidate
A common mistake that many Australians make is that of entering into bad loans. This often happens when they are under financial stress and sold a solution that is simply a short-term fix that leads to worst financial problems.
Loan consolidation can be a bad idea if:
- You are using the money to pay of everyday bills such as groceries, electricity, water, gas, phone, etc
- Have trouble sticking to a budget
- Have a gambling problem
- Wrapping short-term debt into longer-term – this can reduce your monthly repayments but at extended terms, you will pay thousands more in interest.
There are some great loan consolidation companies, accountants or financial planners who can help you manage and eliminate debt. Finding the right help can be difficult, especially if it is a paid service. The key to money management at any level is to understand what is happening with your money, knowing the benefits and consequences.