Could You Benefit from Consolidating Debt?

Debt consolidation often appeals to home owners struggling with several other loans on top of their monthly mortgage repayment.

Multiple debts can be stressful, both because of the financial hit each month and the need to remember lots of different due dates.

By consolidating these debts with your mortgage, you could swap that confusing mix of debt obligations for one simple repayment each month.

What's more, it is often possible to secure a more competitive interest rate than the high rates usually associated with credit cards and other personal debts.

So is debt consolidation for you?

To find out, you'll need to understand the advantages and the drawbacks of this refinancing strategy.

Simplify to one repayment

One of the biggest attractions of debt consolidation is that it can simplify your personal debt situation.

You can take a bunch of loan obligations from different sources and at varying interest rates and replace them with just the one repayment.

This won't eliminate your debt, but it will replace the often confusing web of payments, due dates and interest charges that you are faced with each month.

This can make it easier to keep track of your finances and where you stand on the path to getting debt-free.

Use your equity

If you're a home owner and you've already built up a decent chunk of equity in your home, you may have an advantage when consolidating your debt.

You could use that equity to secure a competitive interest rate for a consolidation loan that is much lower than those usually charged on, for instance, credit card debt.

Customise your loan

Each person's debt consolidation needs differ, so the loan that is best for them will be different too.

A tailored consolidation solution will give you the loan features and flexibility that you require - nothing more, nothing less.

For instance, you may wish to have the option of making extra lump sum repayments. Being able to do this could help you save big on interest over the term of your loan.

You may also want to be able to redraw on such additional repayments, if the need arises.

Similarly, choosing to fix the interest rate for a period of time could give you the certainty you need about what your repayments will be in the short term.

Think carefully

A debt consolidation loan is one solution for dealing with several debt obligations, but it is not the only solution.

It is important to understand that consolidation is not a 'get out of debt free' card. The debt will still be there, and you still need to pay it off.

What is equally important is not to simply get into more debt after consolidating. The goal should be to get out of debt sooner, not to hide it behind your mortgage.

There are also fees involved in setting up a debt consolidation loan. These should figure in your calculations about the savings you could make over the long term.

Talk about your consolidation options

It is highly recommended that before deciding to consolidate your debts you talk to a mortgage broker about your financial circumstances.

They'll take you through your options and tell you what your monthly repayment would be in different scenarios.

They will also help you understand the consequences of consolidating your personal debts with your mortgage - the most important one being that your house will be security for your loan.

Get in touch with a mortgage expert to find out more about debt consolidation and how it could benefit you.