So, What is Debt Consolidation Anyway?
Simply put, debt consolidation enables you to take some or all of your outstanding loans and roll them into one. Instead of making multiple repayments at regular intervals, you’ll potentially be able to make one, easy repayment.
Typically, the debts you want consolidated will be repackaged into your home loan. For example, you may have a car loan, credit card debt, an overdraft and personal loan debt – all loans that are personal and not for business purposes. These loans could all be consolidated into your mortgage, not only simplifying your repayments, but potentially also saving you money in the long run.
So, how exactly does it work, and is it a good option for your circumstances? Let’s take a look at some of the factors you need to consider.
What are the advantages of debt consolidation?
Convenience is one of the major benefits that make most people choose refinancing. Depending on the loan you choose and the options available to you, you could end up with one interest rate and one statement. No matter whether your mortgage is currently paid weekly, fortnightly or monthly, you will end up with adjusted repayments, and potentially less debts. This certainly makes it easier to keep track of everything.
The total amount of interest you have to pay will often be reduced too. Debts are generally consolidated to take advantage of lower mortgage rates compared to higher interest and charges on credit cards, personal loans and so on. The savings can stack up, especially in the short term, which is important if you’re seeking relief from high total monthly repayments.
At the same time, it’s important to keep in mind the repayment timeline you are taking on. In some cases, the consolidated debt may be paid off in a short timeframe within your overall mortgage, while in others, it may be spread out along the duration of the total loan. The first instance is generally better with as it helps to minimise your total interest payments.
Mortgage providers often have promotions to entice customers over to them. By refinancing, you might get a sweet deal or a better offer than what you have with your existing loan structure. It’s worth checking whether current promotions and special deals might end up saving you money. You can read more about the benefits of refinancing here.