Debt consolidation loans are surging as cash-strapped consumers struggle to manage their Christmas credit hangovers.
Marketplace lender SocietyOne says January and February always see a spike in personal loans, and its January figures were a record for the month.
Up to 60 per cent of its personal loans are for debt consolidation.
Reserve Bank of Australia data shows personal loans climbed more than 12 per cent last year to $167 billion, and borrowers are being urged to examine their options.
SocietyOne CEO Mark Jones said it was good to see more people trying to take control of their finances by consolidating debt at a lower interest rate.
“Debt consolidation is particularly popular early in the year when people have made resolutions to get rid of their debt, have school fees arrive, or have simply found they may have overspent with the excitement of the holidays,” he said.
“It’s important to read the fine print and check for extra monthly fees or early repayment fees which can undermine savings.”
Accounting firm RBK advisory director Shelley Davies works daily with clients struggling with debt and said she had personally battled Christmas credit card stresses in the past.
“I was definitely in that category in my mid-twenties, spending on my credit cards as though the debt would just somehow pay itself,” she said.
“Now that I’m pushing 40 I definitely know better.
“The credit card trap is an absolute vicious cycle. Paying fees and high interest rates across multiple cards is not just enormously financially damaging to many Australians, but it’s also mentally damaging too.”
Ms Davies said consolidating debt was one of the first things she discussed with clients after discovering they had multiple loans.
Finance broker Financia’s managing director, Angelo Benedetti, said his business had been “inundated with applications” for debt consolidation loans this month.
“It’s probably a 30 per cent increase in the number of applications we have seen compared with a typical month,” he said.
Mr Benedetti said 90 per cent of his debt consolidation loans were through mortgages to take advantage of low interest rates, but warned that people needed to maintain repayments at a high level to reduce the debt quickly.
“Do your homework and make sure it’s the right thing for you in relation to your overall interest cost,” he said.
“If you stretch a $10,000 loan over 30 years you will be no better off. Work out what it costs to pay it off over a two or three-year period.”