You may have noticed that everyone has had a little bit more of a spring in their step over the last couple of weeks, warmer weather is coming… but so is the debt of winters past.
Whether you racked up credit card debt on a few sneaky trips to the movies on a Friday night (full price tut tut), online shopping in bed on a rainy day, or even took out a personal loan for a spur of the moment tropical holiday to escape the chill, it’s likely you didn’t stick to your “I won’t spend any money this winter” plan.
So if you’ve now acquired more debt than you had in May, first off give yourself a small slap on the wrist, but then flick that devil off your shoulder and put on your finance cap, because the silly season is around the corner and it’s time to get savvy with a debt consolidation loan.
How does a debt consolidation loan work?
Let’s say you have the following debt:
- $20,000 car loan at 9% interest rate
- $5,000 unsecured personal loan at 11% interest rate
- $2,000 credit card balance at 22% interest rate
Wouldn’t it be great if there was an easier way to get debt free?
Say hello to a debt consolidation loan.
Some banks, credit unions or peer to peer lenders offer debt consolidation loans which bundle your high interest loans or debt into a lower interest loan. It takes away the stress of managing multiple monthly repayments for different debts, by consolidating them into one handy bill and even better, one interest rate. And in most cases, the interest rate on a debt consolidation loan is fixed, so you won’t be guessing how much you have to repay every month.
Talk about making things easy.
If you were to add up your separate debts with their respective interest rates, you’d be paying $891 every month and a total of $5,342 in interest. However, if you consolidate your debt in one simple 3 year loan at an 8% interest rate, you’d end up paying $846 per month, and $3,459 in interest - that’s a saving of $1,883 just in interest not to mention $45 a month which adds up to $1,620 over 3 years!
To find out how much you could save head over to Mozo’s personal loan repayments calculator.
Hot tip: Just remember, financial institutions each have their own set of rules so there may be some conditions before you can consolidate your debt. Most of them require you to be over 18, employed and have a good credit rating, but if you are opting for a secured loan some may require you to own a property before you are able to qualify.
Banks vs Credit Unions: who’s got the better debt consolidation loan?
There are advantages and disadvantages for opting to take out a debt consolidation loan from a bank or credit union, as each individual institution will have different rates and borrowing limits. But there are some general pros and cons to going either way so here are a few to consider:
Pro: Branch access
If you like it old-school and like to have the option of visiting your branch now and then, banks are probably your best bet. In most cases, they have more branches scattered around cities and towns so are likely to have one close to you.
Often people think sticking with the same bank is a good option, because who doesn’t love loyalty? Well, sometimes this can mean that you’re settling for a worse rate simply for convenience, and in the case of seeking a debt-consolidation you really want to get your hands on a lower rate if you can to avoid paying too much in interest!
Pro: Customer focus
Because credit unions aren’t privately owned, their main focus is the customer meaning you’re likely to have a pretty good experience with them. Often they are more willing to pull out more stops to impress you, meaning you may be able to snag a lower rate on your debt consolidation loan than you would with a bigger bank.
Con: You need to be a member to access products
The downside to banking with some credit unions is that you need to be a member to access their products, so for a hopefully one-off debt consolidation loan, it may not be the easiest option.
But if you have your heart set on debt consolidation loan with a credit union, you’ll be happy to know that to take out a Low Rate Unsecured Personal Loan from People’s Choice Credit Union (PCCU) you don’t need to be a member! Not only that, this lender really lives up to its name as it took home a 2019 Mozo People’s Choice Award for Excellent Customer Service, so you know you’ll be taken care of.
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