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If you’re currently in debt, you may be considering what options you have to get yourself out of it.

It may be cutting down on your expenses so that you can make extra repayments towards your debt or you may be prioritising which account you want to pay off first.

One option you may have considered is a debt consolidation personal loan. By taking out an unsecured personal loan with a limit that will cover your entire debt, you can close multiple credit accounts and just have the one loan to worry about.

But is this really a great option? We tackle four tricky questions about using a personal loan to consolidate debt to help you decide if it’s the right option for you.

Why would you apply for more debt?

When you’re already struggling with debt, applying for more finance can seem like a step in the wrong direction. However, if you look at it as the debt consolidation loan replacing your debt by bringing it together in one account with one interest rate and one set of fees it may seem like a better idea.

It’s important to remember that the onus of responsibility is on you to close your old credit accounts once you (or the lender) have moved the balance to your new personal loan. Otherwise, you really will be taking on more debt as you may still have to pay monthly or annual fees on your old account.

Why wouldn’t you use a balance transfer credit card?

Balance transfer credit cards can be a good option for those looking to consolidate credit card debt, or even personal loan and credit card debt from certain providers. However, the 0% p.a. interest rate is a great offer for a reason – it doesn’t last forever.

Balance transfer credit cards often come with a 0% or low interest period ranging from 6 to 24 months. If you work out your repayments and find that you can pay off your debt in this period, then this may be a good option to consider. But if you find that you’ll need longer to repay your debt, or you want to make lower repayments than a balance transfer card can offer, then a debt consolidation personal loan may be the better option for you.

There’s no guarantee you’ll be approved, so why apply?

While it’s true that there is no guarantee that you will be approved, the same can be said for any credit product. It’s important to find a personal loan that you are eligible for, so research is an important step in finding the right loan for you. If you are unsure about the application criteria, get in touch with the lender to confirm your eligibility directly.

Why not just use a debt consolidation strategy, such as the snowball method?

There are various debt consolidation strategies out there. One example is the snowball method. This involves paying off the smallest debt first and then working your way up to the largest. The idea is that the motivation keeps you going.

These strategies work for a lot of people and are definitely worth considering if you’re looking for a way to get out of debt. One benefit of taking out a debt consolidation personal loan rather than using this method is that you reduce what you’re paying in interest and fees across your multiple debts.

However, as both methods can work to help you get out of debt, it’s important to weigh up the pros and cons of each option to see which will work best in your personal situation. It’s all about using the strategy that will work for you, whatever that may be.

While we may have tackled some of the tricky questions associated with using a personal loan to consolidate debt, be sure to ask yourself whether this is the right option for you before submitting your application.

Elizabeth is the personal loans editor at finder.com.au. She has a passion for smart spending, saving and investing and enjoys reading the T&Cs so that you don’t have to.

Important information

Information on this website is general and has been prepared without taking into account your objectives, financial situation or needs. You should consider whether this information is suitable for your objectives, financial situation and needs before acting on the information provided.