The financial environment in Australia is volatile – and scary. Expert economists like Paul Bloxham believe that interest rates will quintuple over the next year and a half to reach 5.75 per cent by the end of 2011.
And, against this backdrop, when you realize that home loans and mortgages taken out by Australian self-occupied home owners grew by 2.3 per cent to $3.7billion, you’ll see where the future is heading. Banks have started playing hardball. The RBA states that on loans of $536 million, banks have increased their penalty fees by 9 per cent for those falling into arrears with loan repayments No wonder so many citizens are forced to seek debt consolidation loans to balance their budgets and stay ahead of the wolf baying at their heels! But while a debt consolidation loan can no doubt be a life-saver to some people, it may just as easily end up pushing you deeper into the morass if you use it to take on more debt.
So while planning a debt consolidation loan, make sure you do some planning and seek expert advice. By correct implementation, you can lump together various debts and package them so that you’ll make single monthly repayments at lower interest rates. There are two kinds of debt consolidation loans – secured and unsecured. Secured debt consolidation loans are ones where you put up collateral. This may be in the form of equity in your own home, where you consolidate all your outstanding debt into your mortgage. The interest rates that apply will be the same as your home loan, which can save you a lot of money if your other debt is at higher interest. Secured loans also cany a lesser interest burden, making it more effective in debt consolidation.
Unsecured personal loans for debt consolidation are also available. You can bundle together your various forms of high interest debt into a consolidated personal loan at lesser interest. The downside of unsecured loans is that you will not receive interest rates that are as attractively low as you can get with secured loans. Also, you will be eligible for them only if your credit score is good. Unfavorable credit history will preclude you from applying for an unsecured loan, leaving a debt agreement your only viable solution. Debt agreements may be formal, allowing you to enter into a legally binding contract with creditors.
You are protected against gouging and harassment, though there are eligibility requirements and you will face serious consequences for default. If these make you nervous, maybe you could try and negotiate an informal arrangement with your creditors that will make it easier to repay your debts. By being frank and forthright about your financial difficulties, you may be able to convince your creditors to be patient in the interest of getting paid over time, rather than having to write off their loans when you file for bankruptcy.
