5 alternatives to debt consolidation
16 January 2020
Debt consolidation is a popular strategy for a reason. Under the right circumstances, it can mean lower interest rates, clearer repayment schedules and, potentially, shorter loan lifespans. However, this doesn’t mean that consolidating your debts is the right option for everyone.
There are a few alternatives to debt consolidation that could also help get you back on track and in control of your debt.
1. Get serious about paying off your debt
If you’re carrying debt, it can sometimes seem overwhelming. However, with the right payment strategy in place it’s often possible to take charge of your debt and find a sense of balance again. While debt consolidation can be the answer for a lot of common debt situations, sometimes all you need is a budget and determination.
Getting aggressive about paying off your debt could mean attacking your lowest balance first, or prioritising the one with the highest interest rate. No matter your approach, having a clear strategy in place will help you make tough decisions with your money, giving you a greater chance to be debt-free more quickly.
2. Transfer your credit card balance
If your debt is connected to a credit card, you may be able to look at moving the existing balance to a new card with a better interest rate. The best thing about a balance transfer is that many providers – including Suncorp!1 – offer a promotional rate (usually 0 percent) for a limited period of time. The downside of a balance transfer is that at the end of the promotional period, the card will then often revert to a higher interest rate, potentially impacting any remaining debt on your card.
Before considering a balance transfer credit card, make sure you can budget to pay off the total balance within the promotional period to avoid higher interest rates and potentially additional debt.
3. Consider using your home equity
Own your own home? You may be able to use the equity you’ve built up in your property as a way to take control of your other debts.
Using either a home equity or equity line of credit approach means you may be able to roll your other debts into your current mortgage with your home loan provider. One of the main positives of this option is that your home loan will most likely have a lower interest rate than any credit card option on the market, meaning you’ll pay less in interest. However, rolling your other debts in with your home loan can be risky. With your house as collateral, you run a larger risk of foreclosure if you’re unable to pay your loan.
4. Look into a formal debt agreement
While debt consolidation is a way to roll all your debts together, a formal debt agreement is a slightly different arrangement between you and your creditors. A debt agreement is a legal binding contract between you and your creditors that allows you to create a plan to settle your debts.
Also known as a Part IX, a debt agreement is often the result of a negotiation between yourself and your creditors about the percentage of your debt you can afford over a set period of time. Most debt agreements will carry a limit to how much debt you can put against it, and for how long. Entering into a formal debt agreement is a serious step in debt management, it’s a good idea to seek outside counsel from legal and financial experts before pursuing this option.
5. Seek financial counselling
Looking for more support to help you manage you debt? A financial counsellor may be able to help you sort out your various loans and guide you to a clearer, debt-free future. Their services are often free, and they’ll present you with independent information in a confidential environment. Financial counsellors may also be able to negotiate directly with your creditors, helping you gain more control over your various repayment amounts or loan schedules.
Financial Counselling Australia offer free services and resources to their clients, such as the National Debt Helpline. The Helpline is a free counselling service to help you get back on track. Call 1800 007 007 to speak confidentially with a counsellor.
This article is intended to provide general information only and has been prepared without taking into account any of your particular objectives, financial situation or needs. You should make your own enquiries, consider whether any of the information above is appropriate for you.
Banking Products are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Product Information Document and the Terms and Conditions before making a decision regarding any Suncorp Bank products. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page.
1 Your total balance transfers may not exceed 80% of your credit limit. The 0% p.a. interest rate applies to balances transferred with this offer, for a period of 14 months from the date the balance transfer is processed. At the end of the balance transfer period, the interest rate on any outstanding transferred balance will revert to the Annual Percentage Rate for Cash Advances, currently 21.99% p.a. for the Suncorp Clear Options Platinum card. Interest rates are variable and subject to change. The 0% p.a. balance transfer interest rate will not be valid for transfers from other Suncorp Bank Credit Cards. The interest rates are current as at 01/05/2018. Interest free days on purchases do not apply while you have a balance transfer on your account. There is no BT fee applicable to this promotional offer. For important information to consider before taking up a balance transfer, please see our Credit Card FAQs.