Debt Consolidation Loan

debt consolidation loan

Debt Consolidation – Combining Credit Cards & Personal Loans.

Debt Consolidation is where you combine two or more of your current liabilities into one loan; hence the term debt consolidation loan. It is important to understand that this is not strictly a personal loan type. A personal loan lender will offer you one of two personal loan types:

  1. Secured personal loan
  2. Unsecured personal loan

The FIRST decision that needs to be made when deciding to apply for a debt consolidation loan is; Will you be in a better financial position? That is to say, when you have combined for example a personal loan and a few credit / store cards, will the repayments be less, giving you a better cash flow position?


It would be useful to use a personal loan calculator that will give you a repayment figure after a debt consolidation loan.

Personal loan lenders in general set the minimum monthly repayment on a credit card at 3% of its outstanding balance. So generally speaking the consolidation of a card will get you to pay off the debt faster; and the repayments will be generally lower by consolidating if the amount of the new loan is over $15,000 because the term can be over 7 years for an unsecured personal loan.

Many people have ‘collected’ credit cards, and store cards over the years, and are now in a position where they want one manageable payment for them all, before they end up in unmanageable debt, so only one payment is made, at a frequency that suits; weekly, fortnightly or monthly. Often too people have had interest free loans and after the loan term has expired and they have not paid back the amount due are faced with high interest costs on top of the amount originally borrowed.

In many cases 7 year options are used to consolidate cards and loan contracts originally structured over a 5 year term, making the overall repayment lower with a debt consolidation loan.

Because of the nature of what is being financed with a debt consolidation loan, it is not possible to take security over the item/s being financed, so the financial product will most often be an unsecured personal loan. Sometimes however the lender may take some security over the loan where as an example you are consolidation a personal loan that was for a car; i.e. a car loan. The car could be taken as security effectively making the debt consolidation loan a secured personal loan.

The performance of the credit cards and any personal loans to be consolidated must be acceptable to the ‘consolidating financier’; Banks in particular do not take on bad debts from another personal loan lender, so personal loans to consolidate, as a guide must have the last 6 months paid on time. Credit cards to consolidate must have no late payments or over the credit card limit amounts for the most recent 3 months.

When you apply for a debt consolidation loan your credit history is just one aspect a personal loan lender will look at when deciding whether to lend their money or not. While every lender will have their own lending guidelines; they all follow a similar criteria referred to as the 6 C of credit assessment. It is a good idea to read about lenders criteria to get a better understanding of what they look at for a successful application, because constantly making enquiries or applications for credit can harm your credit rating and make it harder to find a main stream lender to say yes!

Do You have a bad credit history, and wish to consolidate your debt, to make life easier?
There are personal loan lenders who place importance on your ability to pay, and not your credit history, and most of these are referred to as cash advance lenders or payday lenders. If you have tried a Bank for a debt consolidation loan and they said no, then take a look at a debt consolidation loan from lenders who accept a bad credit rating, but be prepared for a higher interest rate, and sometimes hefty fees compared to a bank.

There are top savings tips to help you save money and reduce expenses which would be worth reading because after all the reason you are looking at a debt consolidation loan is probably because your having trouble meeting all of your financial commitments.