Consolidating debt has become a significant part of our refinancing work. The financial benefits that can be obtained by consolidating a range of expensive debt into a single home loan (using available equity as security) can make a significant change to your overall financial position and cash flows.
At Rivendell Finance, we offer a free scenario service, where we can run the numbers and show you how much can be saved by consolidating your debt into a single home loan. Not only will this save you interest, lower your repayments, but it will be much less stressful making one payment each month and reduce your risk of making a late payment, which can negatively affect your credit score, even if 1 day late.
The common consolidating debt we consolidate:
- Credit Cards
- Other Personal Credit Facilities – i.e. Store Cards
- Personal Loans
- Motor Vehicle Loans
- Horse Float & Equipment Loans
- ATO Tax Debt
Consolidating debt is a financial strategy that involves combining multiple debts into a single loan or payment plan.
This can make managing your debt more convenient and potentially reduce your overall interest costs and monthly payments. Here are some common methods of consolidating debt:
- Debt Consolidation Loan: This involves taking out a new loan to pay off all your existing debts. The new loan typically has a fixed interest rate and a structured repayment plan. This can simplify your payments, as you only have one loan to manage, and may also reduce your overall interest costs if the new loan has a lower interest rate than your existing debts.
- Balance Transfer Credit Card: If you have high-interest credit card debt, you can transfer the balances to a new credit card with a low or 0% introductory interest rate. This can provide temporary relief from interest charges, allowing you to pay down the principal faster. However, be aware that these introductory rates usually expire after a certain period, and there may be balance transfer fees involved.
- Home Equity Loan or Line of Credit: If you’re a homeowner with equity in your property, you can use a home equity loan or line of credit to consolidate your debts. These loans use your home as collateral, so they typically come with lower interest rates. However, there’s a risk of losing your home if you’re unable to make the payments.
- Debt Management Plan (DMP): A DMP is a structured repayment plan offered by credit counseling agencies. They negotiate with your creditors to lower interest rates and create a single monthly payment that you make to the agency, which then distributes the payments to your creditors. DMPs can help you pay off your debts more efficiently, but they usually involve a fee.
- Personal Loan: Similar to a debt consolidation loan, a personal loan can be used to consolidate various debts. Personal loans are unsecured, meaning they don’t require collateral, but the interest rates may be higher compared to secured loans.
Before deciding to consolidate your debt, consider the following factors:
- Interest Rates: Compare the interest rates of your current debts with the rates of the consolidation options. Make sure that the consolidation option provides a lower interest rate to save on overall costs.
- Fees: Be aware of any fees associated with the consolidation method you choose. These could include origination fees, balance transfer fees, or fees from credit counseling agencies.
- Credit Score: Some consolidation methods, like balance transfers, may require a good credit score. Applying for new credit can temporarily lower your score due to inquiries.
- Repayment Period: Consider the length of the repayment period for the consolidation option. While longer terms might result in lower monthly payments, they could also lead to paying more in interest over time.
- Financial Discipline: Consolidating debt won’t solve the root causes of debt accumulation. It’s important to address any spending habits or financial behaviors that led to the debt in the first place.
Before making a decision, it’s recommended to do thorough research, compare options, and potentially consult a financial advisor to ensure that debt consolidation aligns with your financial goals and circumstances.
