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Suzy Wheatley

Consolidating your debts | Mortgage Choice in Figtree

Many households are managing smaller debts on top of their home loan. This can be overwhelming and take up time and resources. Debt consolidation can help you pay off your debt faster and save you money along the way. 

If you have a car loan, personal loan, credit card debt or other smaller debt, it's likely you are paying higher interest rates and having to juggle the admin. Some credit card interest rates are upwards of 20%! That means that much of the money you put aside to pay off your debt is going toward the interest rate. Debt consolidation can help. 

What is debt consolidation?

Debt consolidation is the process of rolling up your smaller debts - like your car loan or credit card debt - into one large personal loan. You can also roll them up into your home loan if you have one. As larger debts have significantly lower interest rates, by consolidating your debts into one - you have saved yourself money on interest. Instead, you can focus on paying off the principal debt.

There are lots of benefits to debt consolidation:

  • Take advantage of lower interest rates on one large loan
  • Make managing your debt easier
  • Put more of the money toward the principal loan
  • Get debt-free faster

Refinancing your home loan to consolidate debt

If you have a home loan as well as lots of smaller debts, refinancing your home loan to consolidate your debt can save you money on both. With interest rates the lowest we have seen in years, now is the perfect time to take control of your debt and benefit from a low fixed rate. 

Let's look at an example:

Meet Sue. Sue has a home loan and a range of smaller debts. 

Before refinancing to consolidate her debt:

  • Home loan of $200,000 at 5% interest
  • Personal loan of $15,000 at 12% interest
  • Car loan of $5,000 at 18% interest
  • Sue's total debt equals $220,000
  • Her multiple monthly repayments total $1,600 

After consolidating her debts into her home loan:

  • Sue no longer has to manage multiple debts. She has one single repayment.
  • Sue still has a total debt of $220,000 but she now pays just 5% on the total debt.
  • Her single monthly repayment totals $1,283
  • She has saved over $300 per month, which she can now put toward paying off her debt. 

As Sue has consolidated her debt into her home loan, she has changed what should have been a short term debt into a longer term debt. Sue's Mortgage Choice broker advises her to pay off the $20,000 worth of small debt from her home loan as soon as possible. With the $300 savings going towards it, she should be able to pay it off within months. 

Some things to note about debt consolidation

Should you decide to consolidate your debt and refinance into a new home loan you’ll likely increase the size of your mortgage, which may involve fees such as: discharge; early exit; application; settlement; valuation and more.

You should also consider that consolidating smaller loans into your home loan means you could be transferring a short term debt (like a credit card balance) into a long term loan (your home loan). Before taking this step, you should also consider the loan term, loan structure, the interest rate and the lender’s terms and conditions.

Ready to get started?

Find out for yourself why our customers are so happy. We'll help you take control of your debt. Call us today on 02 4209 3793 or call Phil directly on 0431 415 311.

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