A Secured debt consolidation loan is a personal loan designed to combine multiple debts into one account with a fixed interest rate. One of the conditions of a secured loan is that you provide security against your loan. If you do not have an asset (such as a car or property) to use as security, you will then apply for an unsecured loan. The primary advantage of a secured loan would be to secure a lower interest rate, but do remember, you potentially run the risk of losing your asset if you default on these loan repayments.
How does secured debt consolidation work?
Debt consolidation is an attractive way to manage and settle your debts to numerous individuals. This involves taking out a credit account such as a loan that combines all your debt into one account. When you’re taking out a secured personal loan specifically to consolidate debt look at your statements to know exactly what is owed, the interest you are currently paying on each, the accumulative fees and minimum repayments needed to pay your creditors.
Then work out if by consolidating your debt you are able to reduce the overall fees and interest you are paying including any penalties for early settlement, refinance costs and set up fees for your new loan. This form of debt rescue will extend the term of repayments but can be beneficial in the right circumstances.
Secured debt consolidation options
Determining how you wish to consolidate your debt will depend on the debt type, your current financial position and how much debt you want to consolidate. Types of debt typically combined under a personal loan are credit cards and store accounts, outstanding utility bills and other unsecured loans.
A debt consolidation personal loan is usually the best solution and the most popular way in which to consolidate/refinance your personal loan debt. It simply means borrowing a lump sum or loan with a lower interest rate and fees than your current one and paying all the debts you have transferred across. Do make sure your personal loan allows debt consolidation.
A balance transfer credit card allows you to transfer outstanding debts from several accounts such as credit cards, personal loans and lines of credit and takes advantage of a ‘introductory’ rate which is usually 0% p.a. sometime for as long as 24 months. Thereafter the rate can revert to as much as 22% pa on the unpaid balance.
Those with home loans can consider mortgage refinancing, which is consolidating their debt with their existing mortgage so that repayments are spread over your home loan term.
Secured debt consolidation Interest rates and fees
Debt consolidation loans range from 5.95% up to 26.95% per annum over a 36-60-month term. The advantage of these loans is that you have the freedom to settle your loan early and the convenience of managing one account.
Standard fees would usually include loan establishment fees, service fees and ongoing account administration fees.
Anyone is able to make application for this type of loan and your personal circumstances will determine the lending terms and conditions. You will need a few basic documents such as:
- two forms of ID such as Australian passport or driver’s licence
- if you are employed two recent payslips
- if you are self-employed your most recent tax assessment
How to apply for a secured debt consolidation
Basic requirements for a secured debt consolidation application would require that you are an Australian citizen or permanent resident, be at least 18 years have a good credit history and the application is made in your own name.
This application can be processed within 24 hrs provide all information is accurate, up to date and documents you have provided can be verified.
Advice, tips and considerations
While secured debt consolidation may look like a good option for simplifying debt management make sure you are able to meet the requirements of the loan before you apply. If you fail to make prompt payments, you give the lender the right to foreclose on your property because it was used as collateral against the amount you borrowed.
Unfortunately, during times of financial hardship debt can easily spiral out of control and to avoid bad credit listings on your file or even bankruptcy a consolidation loan can provide a clear path to budgeting just one monthly repayment and save you money on interest and fees.
Some lenders will term a consolidation loan as a “debt consolidation solution” this may be a Part 9 Debt Agreement and is a form of bankruptcy so ask questions about how your loan is structured. This legally binding debt agreement will remain on your file for 5 years and it will be difficult to access more credit during this period
If you do not understand the terms of what you’re entering in to please call us, one of our advisors are here to answer your questions
Frequently asked questions
How does a Part 9 Debt Agreement work?
A Part 9 Debt Agreement can only include unsecured debts and your creditors will agree to remove all fees, claim no further interest payments and accept a percentage of the outstanding monies owed.
What’s the difference between a debt agreement and debt consolidation?
Essentially a debt consolidation loan is a standard personal loan that allows you to consolidate your current debts into one account that you pay back monthly.
A debt agreement is a form of bankruptcy it is designed for those who have a bad credit history and large debts to settle. Accepting this loan will affect your credit file so make sure you have pursed all avenues before signing this agreement.
How do you identify a good debt consolidation company?
Research and more research look for any negative reports, ratings and reviews and how long a company has been operating for. You really want someone who understands the industry operate for people first.
Are there any fees for arranging my Debt Agreement?
Yes, there are processing, and administration fees included in your monthly repayments and upfront fees prior to the Debt Agreement acceptance.
Can I include joint debts in a debt agreement?
Yes. Joint debts may be included in a Debt Agreement however it does not exempt that other person from responsibility because the creditor can still pursue that person to recovery debt.
Need help get out of debt? Give us a call we can help
If you need debt relief solutions we invite you to call us today