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Consolidating your debt in 2023

By Amy Bradney-George, credit card expert at Finder

As the cost of living keeps going up in 2023, so does financial stress.

Finder research shows 73% of Australians are feeling some stress around money right now, with around 1 in 4 people saying they are “extremely stressed”.

If your money worries include credit cards, loans or even buy now pay later balances, debt consolidation could make payments easier to manage and save some money in the process.

Consolidating debt gives you a way to combine your balances into a single account with a single set of rates and fees.

It also means you only have to make 1 regular repayment instead of trying to keep on top of due dates (and charges) for a few accounts.

Some debt consolidation options – such as balance transfer credit cards – even offer 0% interest rates for an introductory period.

So if you’re thinking about consolidating debts in 2023, here are 4 tips to help you make the most of it.

Tip 1: Compare debt consolidation accounts

There are 3 types of accounts you can use to consolidate debts. They all work in slightly different ways, so let’s take a closer look at each option.

Debt consolidation loans

These loans let you consolidate debt from personal loans, credit cards and other bills or accounts such as utilities or buy now pay later.

They offer regular repayments over a set period and charge interest. Some also have establishment and account fees.

Balance transfer credit cards

These credit cards offer an introductory low or 0% interest rate when you transfer a balance (or balances) from other credit cards. Some also accept balances from personal loans.

The introductory period typically lasts for 6–36 months and a higher rate applies after that. Some credit cards also charge annual fees.

Mortgage refinancing

With this option, your existing debts would be added to what you owe on your home loan. As home loans typically have lower ongoing rates than personal loans or credit cards, it can help with cash flow in the short term.

However, it can affect your repayments and the length of time you’re paying off the mortgage. Make sure to calculate the potential costs and consider the risks carefully before choosing this option especially given the recent rate rises.

To recap: You can use debt consolidation loans and balance transfer credit cards to combine and repay debt over a few months or years. They’re also not tied to an asset (like your home). Refinancing your mortgage is longer-term and comes with bigger risks, but could be considered for debts over $40,000.

Tip 2: Check what you need to apply

Every application has its own eligibility criteria. This usually includes proof of regular income and details of the debts you’re consolidating.

Some balance transfer credit cards list a minimum income requirement while mortgage refinancing also depends on how much equity you have or your loan to value ratio (LVR).

Your credit score and credit report also affect your chance of approval because all lenders consider these details.

For debt consolidation loans, your credit score can even affect the interest rate you’re offered.

You can check your credit score for free in a few minutes through Finder. It’s a simple way to get an idea of your eligibility for different credit cards and loans.

Tip 3: Plan your repayments

This tip can help you save as much money as possible through debt consolidation. When you have a plan for how you’ll repay the balance, you can see how long it will take and how much it will cost.

The key is being able to stick to those repayments. This can be challenging – especially with the cost of living expected to go up more in 2023 – but it is possible.

A quick way to work out repayments is to look at your overall budget and decide how much you can afford to put towards debts. You could also use a repayment calculator to get an idea of what’s realistic and affordable.

If you want to factor in potential changes, try to put a bit extra into a savings account each month. That way, it’s there if you need it.

But if your circumstances do change, contact your lender to talk about hardship and support options. You can also call the National Debt Helpline on 1800 007 007.

Tip 4: Close your old accounts

This tip is simple. After all your debts have been moved to a single account, close the old ones.

You’ll have fewer accounts to think about and can avoid any future fees (or debts) from them.