DEBT CONSOLIDATION

Are you looking to consolidate your debt?

You landed on the right page. It is really important you are clear on why you are doing this, understand all the options available to you and make sure that by doing so you do not end up with more debt!

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FIND YOUR RATE

In Focus

Pros and Cons of Debt Consolidation

Debt consolidation can be very useful if you’re juggling many debts like a personal loan, car loan, and some credit card balances. It can be a trap also if you continue to make debt after you have finished the consolidation. Let’s have a look at what to watch out for with the benefits of debt consolidation.

What to watch out for:

If you have previously done consolidating debt, this may be an indicator that you need to look at an entire financial management plan to aid you manage your money.
Do you need any financial help?
If your loans are in arrears you may need to use a non-prime lender. This could cost you more as they may have higher interest rates, application and exit fees.
In some situations, negotiating with your current creditors may be a better option instead of consolidating the debt.

The chief benefits can be:

Easier management of the loan.
Reduced paperwork via one set of statements.
Ease of dealing with one lender instead of multiple lenders.
Repayments are more convenient to manage
Decreasing the interest rate paid on debt.
Potential savings on your entire interest charges and monthly repayments.
Savings on loan fees & charges

And lastly it reduces stress!

Loan Types

When consolidating your debts into your home loan you have an included consideration into your decision matrix. It is obvious to get the right home loan for your requirements is paramount, but it is also necessary to ensure the security of your home.

If you are looking to include debt consolidation as a variable of your home loan, the following loan types may be relevant to you.

1

Split Loan

A split loan is actually not a loan type but a loan feature. Typically a split loan is used when you want to split your mortgage into two – with one portion a fixed interest rate and the other a variable interest rate loan. This feature gives you both security of a fixed rate loan and the flexibility of a variable rate loan and can be personalised to your needs. It can be used when consolidating your debt, as you may want to place the debts you are consolidating into the fixed interest rate portion so that you know each month what your repayments will be. This also allows you to know exactly how much interest you will pay on this debt over time.

2

Variable Loan

A variable rate loan is the most common loan type used when financing or refinancing a property. As such it is likely this will be a loan type you will investigate. This is where the interest rate on the home loan fluctuates over time as market interest rates change. As a result, your monthly payments will vary over the term of the loan. You will need to ensure you either have enough equity in your current loan to cover the debt being consolidated, or a loan-to-value ratio (LVR) that meets your lenders requirements.

Ask a Broker

If you are looking to consolidate your debt through your home loan there are various questions you should ask your broker.

Alternatively, if you are struggling with debts it may be a good idea to talk to a financial advisor or get legal advice to help you sort out your money.

How much debt do you want to consolidate?
What sort of debt do you have such as credit cards, store cards, personal loans or a car loan?
What are the home loan options available?
Should I set up a split loan?
What is the perfect loan structure for me?
How much equity can I use from my home to consolidate debt?
What will be the difference in interest I pay with a consolidated loan vs. my current debts?
How much interest will I pay?
What will the charges be?
Am I able to make additional payments to reduce the debt?
What type of paperwork is required?
How long will this process take?

Ask yourself

To ready for your discussion with your home loan broker, there are also some questions you need to ask yourself to find a right solution.

Why are you searching to consolidate your debts?
What is the current amount of monthly debt payments?
Are you up dated on your all repayments?
Are these payments manageable?
Do you know the interest rates/the terms of your current debt?
Do you have a debt payment plan?
Have you sought financial advice?
Are you searching to refinance an existing home loan? If yes, what are your existing equity, loan amount, interest rate, and lender?
Is your existing home loan in your name or in joint names? If it is in joint names, has the other party given their permission to consolidate the debt via this process?
Are you buying a new property? If yes, what is the property cost and what is the amount of debt you want to roll into this home loan application?
Do you want the money by a particular date?
Are there any personal circumstances the broker needs to be aware of Such as unemployment, sickness or injury?
Are you planning to start a family?