How to consolidate debt.

Are you struggling with debt? Anxious about opening that gigantic pile of letters? Managing your debt can be an enormous strain.

Through careful debt consolidation, you can take back control of your finances. That's where ME can help you. Check out our tips for consolidating debt.

What is debt consolidation?

Many Australians experience debt stress, so the first thing to remember is that you’re not alone. It’s in your lender’s best interests to help you manage it. When you consolidate debt, you fold several outstanding debts into one loan.

Everyone’s circumstances are different, but for example, you might have a couple of credit card balances, a car loan, and a personal loan. Some of these can attract really high interest, making it feel impossible to get ahead.

With a debt-consolidated loan, you just have one repayment to make each month. Having a lower interest rate, making the same repayments can actually clear your debt faster, and you can keep track of what’s owing.

Understand your debt position first.

While it’s natural to want to avoid looking closely at your debt, understanding it in detail is the best first step you can take.

Look at things like:

• How much do you owe across all of your debts?
• How much interest are you paying each month in total?
• Where are you paying too much in fees?
• What are the exit conditions of each debt?
• Is there anything you can pay off right away?

Getting a copy of your credit report can help you see how your outstanding debt has affected your overall position and how you can improve it for the future.

Know your options for debt consolidating.

There are several ways you can consolidate your debt. It’s important to find the right solution for you and the debt you’re facing.

1. Learn to budget.

We spend a huge amount on everyday expenses without even realising it. To save and start paying off your debt, try strategies like colour coding your accounts (also known as bucket budgeting) or cutting some of your household expenses.

Simple changes like comparing deals, planning ahead, and reducing your carbon footprint can all contribute to saving you money.

2. Use a personal loan as a debt consolidation loan.

A personal loan is a useful tool for consolidating debt. If you shop around, you may find you can get a low rate loan with zero account keeping fees, which will help your budget stretch further.
Choosing the shortest loan term you can afford also means you’ll pay less interest over time. Watch out for lenders that charge early payment fees – you shouldn’t be penalised for clearing the debt sooner.

3. Use your home loan for debt consolidation.

If you have a mortgage already, it might be possible to use your home loan for debt consolidation.

The main benefit is that a home loan comes with the lowest rates of all types of credit. Consolidating debt may be as simple as refinancing, topping up the balance of your loan to pay out other debts, or refinancing to a new, bigger loan if you believe this lets you access a better loan rate or improved features.

This does mean your overall loan will take longer to pay down, but repayments on your debt consolidation will be much lower. If you can afford to, pay some of the extra you’re saving to bring the whole balance down sooner.

4. Put windfalls towards debt.

The next time you get an influx of cash, commit to putting some of it towards your debt. Whether it’s your tax refund or a gift from Nan, it’s an opportunity to clear your debt, bit by bit.

5. Become familiar with the snowball method.

From little things, big things grow. With the snowball method, you pay off your debts from smallest to largest. To get the (snow)ball rolling, pay off your littlest debt, then take the funds you were putting towards that payment and tack it on to the next smallest debt owed.
Continue the process until you have created a dapper and debt-free snowman.

6. Financial hardship options.

Life can throw unexpected surprises at us. If you’ve lost your job, suffered an illness or injury, or been affected by a natural disaster, we want to help you manage your financial position. Through our Hardship Assistance Policy, we may be able to help with any difficulties you’re experiencing.