If you accumulate a number of small debts, it can balloon into one big headache!
A simple way to get things under control could be to refinance your home loan to consolidate debt. So – is this option right for you?
What is debt consolidation?
Simply put, debt consolidation is combining all your debts – credit cards, car loans etc – into one single debt with a single monthly payment.
When they are individual loans each of them have their own specific interest rates, conditions and balances – so rolling them all into one loan is both efficient and easy to manage.
But before you head down the debt consolidation route, here are some of the upsides and downsides to help you make a well-informed decision.
• Pay once, instead of several times a month. Managing your debt becomes a lot easier when you pay down all your credit cards – as well as any interest you owe – with one repayment every week, fortnight or month over a fixed amount of time.
• One fixed rate and term. This gives you certainty over payment amounts and keeps you disciplined in paying down debt.
• Less to pay each month. You may end up paying slightly more overall but stretching the term on your loans means that you could well be spending less each month.
There are always pros and cons to any loan decision. Here are some of the cons of using a home loan for debt consolidation:
• You could accumulate more debt. When you consolidate debt, you free up credit. This might make you think you can spend more and, as a result, you end up with even more debt than you had before
• Pay more overall. A loan with a longer term can help you reduce your monthly repayments but a longer term means more interest overall
• Your credit score could take a hit. In the event you don’t keep up with the single monthly repayments on your loan, you could end up hurting your credit score or be in serious financial hardship.
If you’d like more information give us a call on 1300 736 780. We may be able to put you in touch with a lender that can help you consolidate your debts.
Disclaimer: Original content source: Pepper Money. It is designed for publication through Accredited Brokers, to provide you with factual information only, and it is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. If you need financial or tax advice you should consult a licensed financial or tax adviser. The information in the article is believed to be reliable at the time of distribution, but neither Pepper nor its accredited brokers warrant its completeness or accuracy. For information about whether a non-bank loan may be suitable for you, call us on 1300 736 780.