Small Debt Consolidation Loans

The usual way in which small debt consolidation loans proceed is that you apply for and, subject to approval, take out a personal loan for debt consolidation from one financial institution, such as the bank. This can then be used to pay back any existing small debts you may have, and then you are left with just one loan to pay back over a certain agreed term. 

A small personal loan is usually between around $1,000 to $5,000, and they are generally unsecured, meaning that you don’t need to offer any collateral, for example, your house or your car, as security against the loan. However, secured debt consolidation loans also exist.

Are debt consolidations worth it?

There are a number of benefits to small debt consolidation loans. The first one, of course, is that they are usually more convenient. Instead of having a number of loans, for example, various credit cards to pay off, there is just one loan, which instantly streamlines your finances. This means that you only have to focus on repayments for this loan, rather than managing a number of repayments that may occur at different times, and then which you may forget to pay or miss for some reason. Forgetting or missing a loan repayment can, of course, end up in even more money having to be paid, sending you into more debt. It can also lower your credit rating. So – one small debt consolidation loan means only one repayment to have to remember and manage.

Naturally, this one repayment lends itself to the next benefit of small debt consolidation loans, which is that with only one loan, you may also be able to reduce the amount of interest paid. Getting a better interest rate may then mean that you have the flexibility of having more money available to pay off your small debt consolidation loan. This means that you could end up getting out of debt faster. In order to do this, though, you do have to make sure that you actually use these potential savings to leverage your debt repayment. If you don’t, then this advantage will be lost.

It’s also important to issue the warning that while small debt consolidation loans can help you to manage your finances, underlying issues may need to be addressed to get the full benefits. Continuing to spend and accumulate debt will not help you get out of debt or reduce your debt, no matter how many loans you have. Getting advice and information on managing your money in all aspects should help you get out of debt more easily.

Will it affect my credit score?

There are many criteria that can affect your credit score, so it is really important to keep on top of these to avoid this happening. In relation to any kind of debt, one of the easiest ways to lower your credit rating in Australia is by failing on a credit or loan repayment. This is going to cost you dearly as missing just one repayment is going to start affecting your credit score, not to mention incur fees. Therefore, it is crucial that you set aside monthly money, or you often get paid to pay at least the minimum amount due on your loan. Of course, paying the minimum balance will not get you very far in getting out of debt, so again, taking control of your budget is very important. Small debt consolidation loans may also help by meaning only one payment to remember and manage.

Another thing that affects your credit score is making too many credit applications. If you keep borrowing money or even just applying to borrow money, then it’s going to be added as an enquiry on your credit report. That’s why it’s so important to get on top of your debt. This includes balance transfer offers where you can shift your credit card debt from existing cards to a new credit card account to get a lower interest rate. That may help you out for a limited period, but it is probably better to pay off your balance instead. Small debt consolidation loans may help you to access funds to pay off your credit cards and transfer your debt to one easy to manage loan.

Before you fill out an application for any kind of loan, it’s important to get professional advice on the subject of lending, debt relief and managing your finances and regaining control. Check out our debt consolidation loan calculator and contact our friendly staff at Ozzie Loans.