Debt Consolidation Loans – A Case Study
In our day-to-day dealings with clients, we are often asked to give advice regarding debt consolidation, or specifically, debt consolidation loans. You may have heard the term mentioned on television, or in discussion with friends and family. Here at Debt Mediators Australia we find that many of our clients lack a solid understanding of this important product, and we think it’s about time someone addressed the issue.
So what is a debt consolidation loan?
Should you consider applying for one?
Sometimes, the best way to explain something is through example. So we have provided a short case study to show exactly what a debt consolidation loan is, and how you might benefit from one.
Consider the case of Carol…
Carol is a 25 year-old retail assistant with $2,500 in credit card debt. The debt is spread over 3 different cards, and each card has a different interest rate and payment date.
- Card 1 has an interest rate of 15% per year, to be paid on the 1st of each month.
- Card 2 has an interest rate of 12% per year, to be paid fortnightly.
- Card 3 has an interest rate of 18% per year, to be paid on the 19th of each month.
In her current situation, Carol is paying an average of 15% interest per year. The amount owing on her debt keeps going up, and she is having a hard time just making the minimum repayments. A debt consolidation loan could be an ideal solution for her.
As its name suggests, a debt consolidation loan “consolidates” all individual debts into a single amount, with a single regular repayment, over a single time period. Typically, consolidation loans have a much lower interest rate than credit cards or pay-day loans. They can also be repaid slowly (typically over several years), which removes the stress of rapidly-rising interest.
So Carol gets fed-up, and applies for a debt consolidation loan with Debt Mediators Australia. She now has a single loan worth $2,500 instead of three separate debts. Carol has 3 years to pay it off, at an interest rate of only 9% per year. Her monthly repayment are less than half of what they were previously, and she’s actually managing to save money for the first time in years. She plans to put the savings towards buying a house one day.
If your personal situation is at-all similar to Carol’s, you too could benefit from a debt consolidation loan. Click the debt consolidation tab for more information.
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