Debt consolidation

Struggling to make repayments on high interest debts such as credit cards and personal loans?


Debt consolidation can help reduce your monthly finance repayments, save you money on fees and charges and take control of your debt by consolidating your existing loans into a new lower interest rate loan.

Debt consolidation can lower your monthly repayments by combining several loans into a single loan, usually your home loan. Typically, this will include combining unsecured debts such as personal and car loans, credit card balances and store card balances into your home loan – which is secured debt – that which is secured by your property.

Benefits of debt consolidation
The most common reason that people consolidate debt is to reduce the interest cost and payment amounts. The typical benefits of debt consolidation can include:
  • Reduced monthly repayments
  • Lower interest rate on repayments
  • Only one creditor
  • Less fees and charges
  • Less paperwork
  • The chance to get back in control of your debts
  • Extended repayment period

The biggest single issue with debt consolidation is that your debt is now ‘secured debt’, so if you don’t pay it back, you risk losing your ‘security’ – your house.

Other typical consideration points with debt consolidation include:

  • Your debt may take longer to pay off and cost more because of the longer period of time you have to pay it off.
  • It may affect any future loan applications.
  • You may need to provide extra security for your loan.
  • There may be fees and charges associated with setting up your debt consolidation.
  • If you fail to meet repayments, your property may be at risk
  • If you don’t cut up your credit cards, you have essentially freed up your credit card to accumulate more debt.

A debt consolidation case study
Bob and Claire both work full time with average incomes of $65,000 and $40,000 respectively. They have 2 children. They purchased their home 3 years ago for $230,000, but it is now worth $380,000.

Currently, Bob and Claire are paying off the following debts:
Home loan - $205,000 @ 8.07%p.a.

Personal loan - $28,000 @ 11.50%p.a.

Credit cards - $6,300 + $8,900

Interest-free credit card (past interest-free period) - $6,500 @ 26%p.a.

Total Debt - $254,700

Their monthly repayments are:

Home loan - $1,592

Personal loan - $731

Credit cards - $400

Interest-free card (past interest-free period) - $400

Total monthly repayments - $3,323

Bob and Claire refinanced and consolidated all of their debt into a $260,000 basic variable home loan at 8.25% p.a. over 25 years, with the option of redraw.
New total monthly repayments = $2,050

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