Plenty of Australians are juggling multiple debts – maybe a car loan, personal loan, a home loan and a credit card or two. If that sounds like you, consolidating your debts into a single loan can make life much easier, but there are traps to avoid.
Good reasons to consolidate debt.
One of the challenges of paying off a variety of debts is the need to stay on top of multiple repayments. It’s not just a matter of timing, you have to be sure there’s sufficient cash in your everyday account whenever a repayment falls due. And that’s not always easy.
Overlooking a repayment can cost you. It may mean facing a ‘please explain’ from the lender, or paying a penalty fee for late payment. In a worst case scenario, missed payments could be noted on your credit record, potentially making it harder to secure a competitively priced loan in the future.
Streamline money matters.
Consolidating all your different debts into a single loan can make life a lot less stressful. You only have to make one repayment a month, which is a lot easier to budget and plan ahead for than a whole variety of payments.
The potential to save on interest costs.
Debt consolidation also has the potential to let you save on interest costs – especially if you consolidate into a loan with a lower rate than your other debts.
By saving on loan interest, you could find your overall monthly repayments are reduced. This can free up cash to make extra repayments, helping you clear the balance even faster.
Type of loans that can be used to consolidate debt.
Two main options are available to consolidate debt.
1. A home loan.
If you have a home loan, it can be tempting to fold all your other debts into your mortgage. After all, your home loan is likely to have the lowest rate of all types of credit.
The catch is that your home loan is a long term debt, usually repayable over 25 years. Folding a short term debt like a personal loan into your home loan can mean paying more in overall interest.
The solution is to make regular extra repayments on your loan. This will help you save on interest charges. But it’s a strategy that calls for discipline.
2. A consolidation loan.
A potentially easier option is to use a dedicated consolidation personal loan. This gives you a clear end date – the point at which you have paid out the entire balance. You also have the freedom to choose the loan term that suits your budget, usually one to seven years. As this is a lot shorter than a home loan term, you could make considerable savings on overall interest costs.
Look for fee-free extra repayments.
If you’re keen on using a consolidation loan to get on top of your debts, be sure to look for a lender that lets you pay off the loan sooner with no fees.
It’s an easy way to pocket valuable savings on interest costs.
A Defence Bank consolidation loan comes with lots of flexibility – including fee-free extra repayments, a feature that’s not always available with other banks. It lets you put spare cash to work paying down your loan, taking you a step closer to becoming debt free.
Juggling multiple debts isn’t just hard work, it can be extremely stressful. A consolidation loan from Defence Bank can be the key that lets you get back on track. Call our Contact Centre on 1800 033 139 or visit your local branch to find out more.
Important note: This information is of a general nature and is not intended to be relied on by you as advice in any particular matter. You should contact us at Defence Bank to discuss how this information may apply to your circumstances.