Debt consolidation loans a popular way to dust away debt, says SocietyOne

woman on her laptop dusting away debt

Feel like your multiple debts have gotten a bit messy lately? Well, it could be time for a spring clean! 

Managing multiple debts can be tricky, from making car or personal loan repayments to paying off your credit card. But that’s where a debt consolidation loan can make life a little easier (and likely cheaper!). 

But are debt consolidation loans really that popular?
To put it simply, yes they are. 

According to online personal loan lender SocietyOne, about half (50%) of their loans taken out each month are for debt consolidation, with the average loan sitting at around $20,000. 

SocietyOne’s chief marketing officer, Nicole Avery breaks down how it all works.

“Say you have a credit card (or a few of them), store cards and perhaps an existing car or personal loan. Not only does it take a lot of time and effort to make sure you’re repaying all of these on time, but you could also be paying a lot of interest across each debt,” she says. 

“Debt consolidation loans are used to move all of these debts into one, easy-to-manage payment. Not only could this save you a lot of time in admin, but it could save you thousands in interest and help you pay off your debts sooner.” 

Want to compare debt consolidation loans right now? Check out these top options …

Top debt consolidation loans

SocietyOne Unsecured Personal Loan
  • Fixed rates from 5.95% p.a. (5.95% p.a. comparison rate*)
  • Borrow up to $50,000
  • No early repayment penalty

If you are looking for a place to consolidate your debt, the SocietyOne Unsecured Personal Loan might be the choice for you. With this loan customers can borrow up to $50,000 and receive a fixed rate from 5.95% p.a. (5.95% p.a. comparison rate*) based on their credit rating. Loan terms are between two and five years and can be paid back in fortnightly or monthly repayments. Extra repayments are also allowed and there is no early repayment penalty if you pay off your debt ahead of time. Just remember, while SocietyOne waives its application fee for customers with an excellent credit rating, if you don’t have an excellent credit rating you may face an upfront fee of up to $595.

Alex Bank Personal Loan
  • Fixed rates from 5.45% p.a. (5.45% p.a. comparison rate*)
  • Borrow up to $30,000
  • No upfront establishment fee (for applications made by 30 September 2021)

Got multiple debts? You may want to consider consolidating it with the Alex Bank Personal Loan. Not only do fixed rates start at a low 5.45% p.a. (5.45% p.a. comparison rate*) based on a customer’s credit rating, there are also no upfront establishment fees or early repayment penalties to worry about. Don’t forget though, the establishment fee is only waived on approved applications made by 30 September 2021. With this loan, borrowers can borrow up to $30,000 and pay it back in weekly, fortnightly or monthly repayments over one to five years. It’s important to note, Alex Bank allows borrowers to make extra repayments for those  wanting to pay down their debt ahead of time.

NOW Finance No Fee Unsecured Personal Loan
  • Fixed rates from 5.95% p.a. (5.95% p.a. comparison rate*)
  • Borrow up to $50,000
  • No upfront establishment fee

NOW Finance No Fee Unsecured Personal Loan might be the tool you need to consolidate your debt and make repaying what you owe easier. This loan comes with fixed rates that are based on an applicant’s credit rating, starting at a low 5.95% p.a. (5.95% p.a. comparison rate*). Loan amounts go up to $50,000, while loan terms vary between two and seven years. For new loans, there are no fees, so you won’t have to fork out an upfront establishment fee or early repayment fee. NOW Finance allows borrowers to choose a weekly or fortnightly repayment schedule, plus there’s the choice to make extra repayments as well.

How much could I save with a debt consolidation loan? 

That depends on a number of factors like your current debt, interest rates, your repayments etc. 

Mozo’s banking expert, Peter Marshall, says that by consolidating debt consumers could end up significantly reducing the amount of interest they pay.

“The truth is, credit card rates have remained high over the years and while personal and car loan rates have dropped slightly, if you’re paying off a longer loan you may not be receiving a competitive rate,” he says. 

“More and more Australian personal loan lenders now offer debt consolidation loans. By opting for a debt consolidation loan with a low rate, borrowers could end up paying less interest over the life of the loan than paying off their debts separately.” 

Currently on the Mozo database, the average interest rate on personal debt products are as follows: 

  • Credit card: 16.88% 
  • Unsecured personal loan: 9.74% 
  • Secured personal loan: 7.25% 
  • New car loan: 6.14% 
  • Used car loan: 6.64% 

So with that in mind, let’s take a look at this scenario … 

Say you have $20,000 worth of debt. You owe $12,000 on an unsecured personal loan with a 10% interest rate and $8,000 across two credit cards ($5,000 at 20.00% and $3,000 at 12%). 

At the moment, you’d be paying $674 in interest each month across the separate repayments and over three years that would come to a total of $4,191 in interest. 

However if you opted for a three-year unsecured debt consolidation loan with an interest rate of 8%, your single repayment would end up costing you $632 in interest each month. Over the life of the loan, you’d end up paying $2,762 in interest, which is $1,429 less than if you kept your repayments separate. 

And if you snagged a consolidation loan with an ever lower rate, you could end up saving even more. 

“Saving on interest can mean the difference between keeping hundreds if not thousands of dollars in your pocket instead of in the hands of a lender,” Marshall says. 

“On top of a low interest rate, it’s important that consumers don’t forget to weigh up things like annual or monthly fees, as well as repayment features which may allow them to pay off their debt sooner, which could save them even more in interest repayments.”  

Will a debt consolidation loan impact my credit score? 

Just like any other type of lending, such as a personal loan or credit card, a debt consolidation loan can impact your credit score. But whether that’s positive or negative is up to you and how you pay down what you owe.

“When you make an application for any type of credit, the lender will very likely check your credit rating as part of the credit assessment process,” Avery says. 

“This can initially reduce your credit score, but provided you keep on top of your regular repayments you will find that your score can actually improve over time, especially if you don’t make any additional applications for credit before the debt is paid out.”

So it’s crucial that you always make paying off your debt a priority when it comes to your finances. By doing this, not only will you improve your credit rating but you’ll better your chances of being approved or getting a lower rate later down the track. 

Want to find out more about debt consolidation? Jump over to our debt consolidation hub for more information and more top lenders!

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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