Debt consolidation is arranging one or more loans that replace several other loans and / or credit card and store card debts, business debts or Australian Tax Office debts (ATO debts). The point of the exercise is to arrange a loan with a lower interest rate so that it reduces your monthly outgoings. The reduction in monthly payments can be dramatic. Debt consolidation has the potential to save you thousands of dollars when done correctly. I recently saved one customer over $3,000 per month by refinancing three home loans and consolidating approximately $100,000 of other debt. This customer had a big, black mark on their Veda file for a five figure sum (Veda is Australia’s number 1 credit reporting agency which every mortgage lender checks before considering a loan application) and a few years ago I would have been advised not to waste my time that it was one for the “too hard basket”. I now have access to a wider range of lenders, a number of whom are what are known as “Non-Conforming” lenders who will lend money to customers that the banks will not consider. One of these lenders boasts that they can give you a favourable turnaround within 24 hours. There are a number of these non-conforming lenders that I have access to and you would be pleasantly surprised at what they can finance, depending on the level of equity in your property.
The following warning I posted some time ago, is now no longer of such pressing importance –
THE MOST IMPORTANT THING TO REMEMBER ABOUT DEBT CONSOLIDATION IS TO NOT LEAVE IT TOO LATE TO START THE PROCESS. ONCE IT CAN BE SEEN THAT YOU HAVE MISSED OR BEEN LATE WITH CURRENT DEBT REPAYMENTS, IT BECOMES HARDER TO GET ANYONE TO LEND TO YOU. AT BEST YOU MAY HAVE TO WAIT THREE MONTHS TO SHOW YOU CAN KEEP YOUR PAYMENTS TIMELY.
Whilst I still believe it is better to take action regarding consolidating debt sooner rather than later, I am now absolutely amazed at what some lenders are now prepared to “forgive” when considering a refinance loan to consolidate debt, if there are good reasons for what has happened, such as being retrenched. Some specialist lenders will now not be deterred by 12 months’ mortgage arrears, unpaid Veda black marks, Australian Tax Office debts, (ATO debts), business debts and so on. With historically low interest rates it has never been easier to get yourself out of financial quicksand. If you have sufficient equity in property it seems now anything is possible.
There are those who say you should not replace short-term debt with long-term debt. That’s all very well in theory, but if you cannot keep to the existing payments, you may have little choice. In any case, if you maintain your previous combined level of payments it would also mean you could pay off your loan quicker since you are paying less interest now and will be paying off the capital quicker.
Having one loan makes managing your debt a much simpler process as you would then only have one lender to deal with and only have one weekly, fortnightly or monthly payment to think about.
The biggest advantage of debt consolidation is the potential for big savings on your monthly repayments and overall interest charges. It can help you make a new start, to get your life back on track and put you back in control of your finances.
Many people choose to refinance their home loan to consolidate their various unmanageable debts as normally a home loan offers a comparatively low interest rate when compared to credit cards and store card debt, but there are other options available such as a personal loan or credit card balance transfer. However, personal loans will invariably come with a higher interest rate than a home loan.
Rather than trying to make several separate repayments at various times of the month, after a debt consolidation you may only need to make one single monthly repayment or two fortnightly if you prefer.
It is good advice, once you have consolidated your previous debts, to cut up your credit cards and cancel the arrangement with your bank or store. Replace credit cards with debit cards.
Along with savings, debt consolidation can sometimes incur some costs. These will vary depending on how you choose to consolidate debt, but may include lender fees on a new loan, plus possible exit fees on personal loans and fixed rate home loans. You may also incur some government charges if you refinance your home loan to consolidate debt, but these can all be wrapped up in the new loan and you will most likely still be much better off each month.
A personal loan can be useful for consolidating high interest debts like credit card balances and store cards. You could end up paying a much lower rate of interest for what is now a fixed term. The average credit card debt takes some 8 years to pay off apparently.
A favourable “balance transfer” deal can make it easier to pay off a credit card balance if the interest rate you’ll pay for the balance transfer period is drastically lower than what you’re currently paying. Try to pay off the balance in the offer period (i.e. the first twelve months probably) to make the most of the reduced interest rate on offer, which is usually for a limited time. Do not lose sight of the “revert to” rate with a new card or the cost of new, additional borrowing. The low rate on offer only applies to the debt you have transferred. Again, it might be a good idea to cut up your new credit card and substitute a debit card instead. Concentrate on paying off the transferred debt as soon as possible.
If you need help getting a home loan or assistance with any of the issues covered on this site, please call me, Vincent Woodall directly on 0451 596 575 or you can send me an email to firstname.lastname@example.org or alternatively please complete and submit the enquiry form below.
I am a mortgage broker in Adelaide and I am –
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Find a home loan with someone you can trust and who will ensure you’re getting the right home loan for you. Vincent Woodall. 0451 596 575 or alternatively send me an email to email@example.com .