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Debt consolidation – what you need to consider to reduce your debt

June 22nd, 2011 -

Sometimes do you feel as if the bills will never stop coming? Each month there is…

  • an ever growing credit card balance to pay,
  • the hire purchase payments on the new tyres you had to ‘emergency’ buy to pass your last warrant of fitness, and…
  • the washing machine you bought last year (but forgot you hadn’t paid for yet) on that deferred payment scheme that seemed too good to turn down!

Rather than struggle through working out who to pay and when, it may be worthwhile for you to consider consolidating your debts into one easy to pay loan. The aim of consolidating your debt is to not only reduce the number of repayments you make each month but also reduce the amount of money you pay and the length of time it takes to repay the total debt.  There are a number of things you should consider when looking into debt consolidation.

  • Interest rates – to help decide whether a consolidation loan will work for you, it’s important to compare the proposed consolidation loan interest rate with the interest rates on your current debts (eg credit card or hire purchase). The lower the interest rate the less you will be charged for your loan each year.
  • Establishment and penalty fees – it’s important that you understand what fee you will be charged for establishing or setting up your consolidation loan. Some providers charge hundreds of dollars worth of fees, which is generally added to your loan, while others charge a much lower fee. Some providers will also charge you a penalty fee if you choose to pay your loan off sooner (NB: NZCU Baywide does not charge an early repayment penalty fee for personal loans).
  • Repayments – it’s in your best interest to make your weekly/fortnightly/monthly repayments as high as your budget can afford. The higher the repayments, the quicker you pay your loan off and the less interest you will pay.
  • Total amount repaid – again, it’s important to compare what the current total amount you will be repaying (amount borrowed plus fees plus interest) on your debts vs total repayment amount on your debt consolidation loan to ensure that consolidating your debts is the best way to go.

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