How do I get a debt consolidation loan?
Having just one loan to cover and pay off all your debts can help you to free up your finances, allowing you to save more easily and potentially get you debt-free, faster.
A debt consolidation loan is designed to combine all your debts – including credit, student debt, or unsecured loans and more into one.
It benefits those who are struggling to manage or pay off multiple debts and can be a great option for anyone wanting to get out of debt, reduce their current interest rate and fees, or improve their credit score.
How does debt consolidation work?
Debt consolidation works by rolling all your existing debts into a new loan with a single low-interest rate. This is called a debt consolidation loan, and it works exactly the same way as a personal loan.
By taking out a personal loan to consolidate your debt, you can get a new loan term that makes it easier to manage your repayments and visualize being debt-free.
Debt consolidation works well in situations where a person might have multiple credit cards with different rates and fees or more than one unsecured loan. By consolidating debt into a single loan, you no longer have multiple rates and fees – saving you money in interest repayments.
Managing multiple debts can be stressful and, if you fail to manage payments, can cost you even more money as well as negatively impacting your credit score.
Debt consolidation loans help to ease this financial pressure by offering a consistent repayment schedule while also allowing you to make early repayments. This may let you pay down your debt faster, helping you save in interest and potentially getting rid of your debt altogether.
Who can benefit from a debt consolidation loan?
Anyone juggling multiple debts or paying off high credit interest across multiple cards can benefit from a debt consolidation loan.
In Australia, one of the most common motivations for taking out a personal loan is to consolidate debt.
There are a variety of different types of debt that can be consolidated. You can use a debt consolidation loan to repay:
- Credit card debt
- Store cards
- Hire purchase debt
- Car loans and other unsecured personal loans
- Medical bills
- Rent owing
- Utility bills (mobile, internet, electric, gas, cable, etc.)
- Personal lines of credit
- Income taxes
- Bank overdrafts
There may be a number of reasons why someone would choose a debt consolidation loan, including:
- Simplifying monthly repayments: Owing money to multiple lenders can be difficult to manage. If you have debt across multiple forms of credit then it may be hard to set up a realistic repayment schedule. Not to mention, you will likely have varying interest rates, fees and repayment dates. A debt consolidation loan makes it easier to track repayments by offering just the one repayment date and interest rate, helping you to budget far more easily.
- Lowering interest rate: Having various interest rates across multiple credit cards can leave you out of pocket. A debt consolidation loan provides just one interest rate to cover all existing debts, and typically attract a better interest rate than credit cards.
- Improving credit score: A debt consolidation loan makes it easier to meet monthly repayments, allowing you to pay your debts on time. If you’re on time with your debt repayments, your credit score can improve.
- Becoming debt-free: When you’re managing multiple debts, it’s nearly impossible to see the light at the end of the tunnel. A debt consolidation loan provides a new fixed-term loan meaning you can see when your debt will be paid off.
RateSetter uses risk-based pricing to determine the overall cost of your loan including the interest rate applied. Generally, there are three key features that make up the cost of a debt consolidation loan. They are:
- The interest rate (fixed or variable)
- Upfront fees (e.g. establishment fee)
- Ongoing fees (e.g. monthly fees and late payment fees)
These costs are combined to create a blended rate called a comparison rate. This makes it useful when comparing personal loan rates for debt consolidation loans and helps you to determine if a debt consolidation loan will work out cheaper than your current repayment fees and interest rate.
For an accurate estimate of how much your debt consolidation loan will cost, we recommend using our RateEstimate quote tool prior to applying for a debt consolidation loan.
How do I get a debt consolidation loan?
If you are eligible for a personal loan and have decided that debt consolidation will benefit your circumstance, then you can begin the easy online application for a debt consolidation loan.
As part of your online application, you’ll be asked to verify your identity as well as provide details of the following:
- Your current income and proof of employment
- Your expenses and liabilities (credit cards, loans, etc.)
- Your repayment history
- Your credit score
- Further information about the loans or credit cards you wish to consolidate
You will also be prompted to share your bank details which will allow your funds to be loaned to you upon approval of your application. Once your application has been finalised, you should be approved within 1-2 business days.
If you’re ready to become debt-free, then get started today with a debt consolidation loan that works for you.
Sebastian has over 12 years experience in consulting, marketing and finance. He has worked with Australia’s largest banks and emerging fintechs across lending, investing and insurance. Sebastian has a Bachelor of Commerce and Bachelor of Laws with Honours.
How do I get a personal loan?
The first step in applying for a RateSetter loan is to request a RateEstimate. Your RateEstimate is an initial assessment of your eligibility to apply for a loan with RateSetter. It provides you with the estimated fees, charges and interest rate that may apply to your loan, taking into account a number of factors including your proposed loan term, amount, purpose and personal credit history
Requesting a RateEstimate won’t impact your credit score and there’s absolutely no obligation for you to proceed with a loan application. It’s free, secure, and will only take 1 minute to complete. To be eligible for a RateSetter loan you must
- Be aged 21 or over
- Be an Australian citizen or permanent resident
- Be earning over $25,000 per year from a regular source of income that you can demonstrate
- Have a good credit history
RateSetter will consider a loan application if you are self-employed. Additional credit assessment criteria and requirements may apply.
Are personal loans taxable?
Money received from loans are tax exempt, but they can be subject to income tax under certain conditions. Personal loans are not considered income for the borrower unless the loan is forgiven. In other words, you cannot be taxed on loan proceeds unless the lender grants the borrower a reprieve on paying back the debt owed. This is known as loan forgiveness. In the event a loan is forgiven, the proceeds associated with the original loan are considered “cancellation of debt” (COD) income. COD income can be taxed.
Can I increase my personal loan amount?
If you need a bit extra, you can apply to increase your existing personal loan. You can do this easily by completing an online application. If approved, you’ll continue to have one loan amount and one repayment schedule. Depending on how much your repayments are increased by you may want to extend your loan terms during this process.
Can I take out a home loan after a personal loan?
A personal loan’s impact on your home loan application depends on whether you have the means and ability to meet both repayments. Existing personal loan commitments are factored into your home loan application by repayments being included in serviceability calculations.
Some lenders use a calculation known as ‘debt-to-income’ (DTI) ratio, which determines the percentage of your monthly income (before tax) that gets eaten up by debt and household expenses. In general, the lower your DTI ratio, the better your odds of getting approved.
What does conditionally approved mean for a personal loan?
When a lender conditionally approves a personal loan it means the loan will stand unless you fail to meet the stipulations the lender lays out. A conditionally approved loan comes after a pre-approval and before a fully approved personal loan.
Conditional approval comes once you have provided the necessary documentation to get your loan set up and verified and once an underwriter has dug a little deeper into your circumstance. At RateSetter we pride ourselves on reviewing loan applications in a fast and frictionless manner. It takes just five minutes to submit an application. Once we have received all required documents we aim to provide you with an outcome within 2 business days.
If we approve your loan application, you will have two weeks to accept the loan before your approval is no longer valid. If you need additional time, please contact us.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.