Would debt consolidations help you?
11 March 2008
When considering the options of debt consolidations under a refinanced home loan, it is important to keep in mind whether what you are moving to will help. Analyse the benefits that consolidating your debt will give your financial situation. If you are wondering what sorts of questions to ask, perhaps this guide will start you on the right track.
Is monthly expenditure the issue?
If immediate monthly expenditure is troubling you and you don't mind paying more in the long term if it means you can retain your home, then refinancing to a longer term home loan that covers your other debts as well could be advantageous. If you have many credit card and personal loan debts, it is likely that some of those will have a higher interest rate than your mortgage. Paying less interest immediately on those smaller debts will take the monthly strain off, but over a long time may cost more. The balance of immediate relief to detriment at the end of the loan is an important consideration of debt consolidations.
Are you being charged unnecessary fees?
By choosing extra facilities when borrowing funds, you slap yourself with higher charges that can needlessly overextend your finances. If your current home loan has a redraw facility you cannot use or your credit card has a costly rewards program, then you are wasting money. Debt consolidations that bring all your debts under a no frills home loan are a common way to alleviate overcharging. Just make sure to ask about any possible fees related to your new debt to avoid a repeat experience.
Could you get a lower interest rate?
If your main motivation for debt consolidations is a lower interest rate, are you sure there is one available? Sometimes lenders offer interest rates that are seemingly much lower than what competitors offer, but it then turns out to be an introductory discount rate. You may rationalise a change to this by deciding to refinance again once the introductory rate has finished, but will you actually do so? Furthermore, will you be able to? If you refinance too often, you may find lenders become unwilling to accommodate you. If all you want are lower interest rates on your other debts, though, your current lender may be happy to refinance you for more. Research the rates available thoroughly before making a decision.
When you've calculated your savings, are you ahead or still just surviving?
If all consolidating your debts will do is take you back to a level where you are barely making your monthly payments, then you'll need professional financial counselling. It may be that you overextended yourself originally and need to reinvest in a less costly property. Otherwise, you may have taken on too much debt to pay and need to default. Seek professional advice that is specific to your situation, and be ready to make difficult decisions if they will save your financial security.
For more information on home loan lenders that may be able to help you in your debt consolidations, please visit our home loans page.
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