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Taking Back Control of Your Debt: Understanding the Pros and Cons of Debt Consolidation

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Natalie Tan

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According to research conducted by CommBank, retail spending jumped 6.4% leading into the Christmas period, with Black Friday sales driving an 8% increase in the last week of November. For many people, Christmas time spending can mean splurging and letting finances get a little out of control in the latter part of the year; often due to increased spending on credit cards and also increasingly popular “Buy Now, Pay Later” services available online and in-store.

Combined with the extra seasonal spending, with 2022 being largely dominated by interest rate rises, many families may feel like they are falling behind with their finances as they juggle additional repayments and increased spending on gifts, food & drink, and travel and holiday expenses during the summer.

Consolidating your debts into a home loan can be a smart financial move, but it’s important to understand the pros and cons before making a decision. By consolidating your debts, you can potentially lower your monthly payments and ideally pay off your debts faster. However, there are also risks to consider, such as extending the term of your loans and paying more interest over the life of the loan.

Taking back control of your debt – What can be consolidated?

Credit Cards

One of the most common types of debt that can be consolidated into a home loan is credit card debt. Credit card interest rates are often much higher than the interest rate on a home loan, so consolidating your credit card debt into a home loan can save you a significant amount of money on interest. However, it’s important to keep in mind that you’ll be taking on more debt specifically attached to you home loan by consolidating your credit cards into a home loan, so you’ll need to make sure you are comfortable with this.

Personal Loans

Another type of debt that can be consolidated into a home loan is your personal loans. By consolidating your personal loans into a home loan, you can potentially save money on interest and simplify your monthly payments by having just one loan to worry about. What many people don’t realise is that Buy Now Pay Later providers (such as ZipPay and AfterPay) also count as personal loan providers. If you have an outstanding balance with one of these BNPL services, now might be a good time for you to break the spending habit and consolidate those loans into a single repayment.

Car Loans

Car loans are another type of debt that can be consolidated into a home loan. This can be especially useful if you have a car loan with a high-interest rate, or if you’re having trouble making your monthly car loan payments. By consolidating your car loan into a home loan, you can save money on interest and lower your overall monthly payments.

Tax Debt

Finally, tax debt can also be consolidated into a home loan. If you owe money to the government in the form of taxes, you may be able to consolidate that debt into a home loan. This can help you avoid late fees and penalties, and can also potentially save you money on interest.

You may also have any of the following debts that may also be eligible for a consolidation

  • Medical bill
  • Payday loans
  • Student loans
  • Other Auto loans (such as boats and caravans)
  • Business loans
  • Home equity loans

Why consolidate my debts?

Adding debt consolidation to your financial strategy can be a great way to reduce your monthly payments and simplify your debts. If you have equity in your home, consolidating your debts into a home loan can be a particularly effective way to get relief from high-interest debts and reduce your overall monthly payments.

In addition to the potential financial benefits, consolidating your debts into a home loan can also provide a sense of relief and confidence. Many people struggle with multiple monthly payments to various lenders, and it can be overwhelming to keep track of multiple due dates and interest rates. By consolidating your debts into a home loan, you can simplify your monthly payments and make it easier to manage your debt.

Getting expert advice

It’s worth noting that not all types of debts can be consolidated and it depends on the lender and your individual circumstances. In addition, while consolidating debt can simplify your monthly payments, it can also extend the life of your loans and potentially cost more in the long run. It’s important to consult with a financial advisor to understand the pros and cons and ensure that consolidation is the best option for you.

Overall, consolidating your debts into a home loan can be a smart financial move, but it’s important to carefully consider the pros and cons before making a decision. Be sure to shop around for the best interest rates and terms via your mortgage broker, and make sure you’re comfortable with the amount of debt you’ll be taking on. And remember, if you’re having trouble making your payments, don’t hesitate to reach out to a financial expert for help.

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