Debt Consolidation
Zombie Debt
Occasionally we come across zombie debts, or debts that have come back from the dead. These zombie debts frequently incurred during early life come back to haunt you later in life, generally when you’re in a much different position (wanting to settle down, get married, buy a house, have kids). Sometimes our clients have got a debt consolidation loan and have paid out their debts but haven’t closed the accounts. These accounts start to accrue fees and charges, mainly through having direct debits dishonouring repeatedly on these accounts. With no payments penalty interest rates kick in and the balance of the zombie debt grows. The second way zombie debts occur is...
Read MoreIs One Payment More Convenient?
Most people use debt consolidation for the convenience of one repayment, but is one repayment actually more convenient? The average saving on a $10,000.00 credit card, when consolidated into a personal loan, is only $5.00 per month, over 7 years. This means debt consolidation doesn’t provide much of an improvement in cash flow. The question you’ve got to ask yourself is, “is it going to be easier for me to find one large payment or lots of little payments?” You may be able to find a spare $20.00 here and there to make a payment on your credit cards, but it may be a lot harder to find $100.00 to make a payment on your debt consolidation...
Read MoreDebt Consolidation Benefits Decline
The benefits of debt consolidation are fast decreasing. Most people consolidate credit card debt into personal loans. The main benefit is the lower interest rate. However the difference betweed credit card interest rates and personal loan interest rates is decreasing. With a difference of 5.5% in March 2008 the difference now is only 3.95% and expected to shrink. Reserve Bank data shows that interest rates on personal loans has been steadily climbing and the last time it was this high was June 1993. But I hear you say “aren’t interest rates at emergency lows?” Yes, if its a home loan, but banks quietly jacked up or failed to drop their...
Read MoreApproving a Debt Consolidation Loan
When approving a debt consolidation loan, what do banks think about? Approving loans really hasn’t changed much in 100 years. In the banking industry it’s referred to as the 4 C’s of Credit; Character, Capacity, Collateral, Conditions. The 4 C’s matter. Character This refers generally to your credit history but it also takes into account your education, where you live and how long you’ve been there, and your marital status. Example, young single man, moves every 3 months vs Man in 5 year De Facto Relationship lived in same house for 5 years. Who would you give a debt consolidation loan to? That’s right, Mr Stable. Capacity Refers...
Read MoreDebt Consolidation Loans – what will stop you.
When overwhelmed with a multitude of debts, you might think about a debt consolidation loan. Debt Consolidation loans are not a sure thing. You don’t have a statutory right to finance. If your debts are above $50,000 and you don’t have property with equity to refinance, you won’t get a loan. If you have any kind of default these days (even $100.00 electricity bills), you wont get a loan. Don’t have a full time job? Or only been with your employer for a short period of time. You won’t get a loan. Owe any “non-bank lenders” eg Cash Converters, Fast Access Finance? You won’t get a loan. With bank lending more cautious than...
Read MoreDebt Consolidation 3
If you’re considering debt consolidation, you need to be clear on why you’re doing it. Do you want to be debt free faster? Are you trying to repay less in total? Do you need reduce your repayments because you can’t afford them? Are you having trouble budgeting for multiple debts with different due dates? Be aware that debt consolidation can’t do all of these things at the same time. If you want to get the most out of debt consolidation, be clear about why you’re doing it. Debt Consolidation can only help you become debt free faster because your repayments are higher. If you want debt consolidation to help you get your repayments down,...
Read More