If you’re managing multiple debts, such as credit cards, personal loans, or buy now pay later loans, you may find it overwhelming to keep track of various due dates, interest rates, and payment amounts. A consolidation loan is one way to simplify your finances, potentially lower your interest rates, and regain control over your payments.
What is a Consolidation Loan?
A consolidation loan is a type of loan you use to pay off multiple existing debts. Instead of juggling several payments each month, you take out a new loan that pays off those debts, leaving you with just one monthly payment.
In short: it’s a way to bundle your debts into a single, more manageable loan.
How it works:
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Apply for a Consolidation Loan
You begin by applying through a bank, credit union, or online lender. The amount you borrow should cover the total of your current debts.
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Pay off existing debts
Once approved, the funds from the new loan are used to pay off your existing debts — credit cards, bills, or other unsecured loans.
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Make a single monthly payment
After your previous debts are paid off, you’re left with just one loan to repay, usually at a fixed interest rate and over a set term.
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Stay on track
You now have one monthly due date, one interest rate, and a clearer path to becoming debt-free.
Benefits of a Consolidation Loan
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Simplified finances
Managing one loan is often easier than handling several accounts.
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Lower Interest Rates
You may be paying high rates of interest for all of your various loans and may qualify for a lower rate of interest with another lender. Additionally, if your credit has improved since you first took on your debts, you might qualify for a lower rate.
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Lower repayments
A single payment may be lower than the combined minimum payments you were making before.
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Potential credit score improvement
Reducing the amount of credit you have and making consistent payments can help your score over time.
Things to consider
While consolidation can be helpful, it’s not a one-size-fits-all solution. Keep in mind:
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You may pay more interest over the life of the loan if you extend the repayment period.
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Some lenders charge fees if you repay earlier than the original loan term.
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It's important to avoid accumulating new debt after consolidating, or you could end up in a worse position.
Is it right for you?
A consolidation loan can be a smart tool if you're struggling with high-interest debt and want a structured, simplified way to pay it down. As with any financial decision, it’s important to weigh the pros and cons based on your individual circumstances and, if needed, consult with a financial advisor.
If you think this could be the right option for you, you may benefit from a Consolidation Loan with GWCU. We offer flexible repayment options, weekly, fortnightly, 4-weekly, or monthly, and, for Money@Work employees, the convenience of salary deductions. Our team is committed to providing personalised support to help you take control of your debt and move toward financial freedom.
