Last Updated on Jun 7, 2022 by James W
Statistics show that people in New Zealand owe increasing amounts of money to creditors. Whether they are paying off credit card bills, car loans, or other debt, these monthly payments can add up very quickly.
If you are experiencing a similar issue due to credit card debt or student loans, you may be wondering about your options. One of the ways that you can escape from this nightmare of constantly paying monthly instalments is to consolidate your debt.
What is Debt Consolidation?
The concept of debt consolidation is to take all your loans, pay them off using a new loan, and then continue to make monthly payments on the new loan. You can obtain debt consolidation loans in NZ through reputable companies such as Alternate Finance, which allow you to borrow the funds you need with relatively low interest rates.
If you have a decent credit history and no instances of failing to make payments on loans, you should receive debt consolidation loan offers with modest interest. That means you can borrow money using debt consolidation loans in NZ, pay off your existing loans, and slowly pay off the new loan without incurring a huge interest balance.
The single biggest advantage of debt consolidation is that you take five or six loans and convert them into a single, manageable loan. Even with auto-pay, keeping up with how much money you must put aside for each loan every month is challenging.
As each loan has its own terms, you may find that adding up the monthly payments amounts to a significant sum. Then you must factor interest into the equation, as many credit cards charge high interest if you fail to pay your entire balance at the end of the month.
Debt consolidation ensures you have a single, low interest loan to worry about every month.
Improve Your Credit
Another reason to borrow money to repay existing debt is to boost your credit score. If you have a decent score that you want to bring up, debt consolidation is one way to do so.
Paying off a lot of your loans ensures that your credit usage goes down, especially if a lot of that debt is due to credit cards. As your credit utilisation declines, your credit score goes up.
Debt consolidation can also boost your credit score if you have any debt that you stopped repaying. You can pay off that loan through your new loan, along with your other loans, and only worry about one loan moving forward.
Is It Right For You?
Consider your circumstances before you go the route of debt consolidation. If you have four or five loans with close to 0 percent interest, then you are not in a position to consolidate debt. Your existing loans have very good terms, and you should focus on repaying them before you take any other action.
People who have several high interest loans are much better suited to debt consolidation, as they make their debt easier to manage and save money on interest payments in the coming years.