In Australia, a healthy level of debt is considered a good thing. Managed well it can help you achieve financial and personal goals, like home ownership or a new car.
However, when your debt gets out of hand and you find yourself juggling multiple cards and loans, it can be exhausting.
If this sounds familiar, there are actions you can take to rein in your debt and pay it off sooner. Debt consolidation is one option. There are also free advice resources available.
What is debt consolidation?
Debt consolidation could help you to combine your outstanding debts into one convenient loan potentially at a lower rate than you currently pay. Simply put, that’s one loan, one regular repayment, one interest rate and one set of loan fees.
How to consolidate debt?
Step 1: Gather information about all your debts
To take control of your debt it is essential to know how much debt you have. Review your statements and work out the following:
- How much do you owe on each debt?
- The interest rate you are paying on each debt
- What are the monthly fees on each debt?
- Any break costs.
Step 2: Work out how much you can put towards paying off your debt each month
Next, it’s good to know where your money is going and how much you have coming in. Talk to us about how to work out how much you can realistically afford to repay each month.
Step 3: Explore debt consolidation options
Now that you know where you stand – how much debt you owe and how much you can put towards your repayments – it’s time to set up a plan to clear it.
Debt consolidation options
Mortgage Link can help find the best solutions for you, but here are just a few ideas:
- Combine your debt into an easy to manage debt consolidation loan
- Transfer your credit card and/or store card debts onto a low rate credit card offering a competitive balance transfer rate
- Consolidate debt with a home loan top-up.
Debt consolidation loans
A personal loan can be a good option to consolidate a range of debts. The main benefit of a personal loan is that it has a fixed term. That means repayments are calculated so that at the end of the loan period your debt is cleared.
By combining multiple debts into one easy to manage personal loan you can potentially:
- Save money by eliminating multiple fees across multiple debts
- Take advantage of a lower interest rate when compared to your existing debts
- Simplify your banking with a single repayment to manage.
Credit card balance transfers
This is generally the best option for consolidating credit card debt. By transferring multiple balances from non-Westpac credit cards or store cards into one low rate credit card you can potentially:
- Take advantage of balance transfer offers to gain some breathing space to pay down the debt without incurring interest, assuming you pay at least the minimum monthly repayment by the due date each month
- Save money by eliminating surplus card fees (if you cancel your other cards)
- Simplify your banking with only one statement and a single monthly payment.
This option requires good discipline as there is no set repayment amount. Remain focused by putting a plan in place to pay off the entire balance during the interest free period. You should also consider cutting up your old credit cards so you don’t end up in more debt. If you are finding it hard to keep up with your billing cycle, set up a direct debit. That way, your credit card repayments will come first.
Home loan top-up
Applying for a home loan top-up can be a quick and cost effective way to consolidate your debt. By consolidating your finances under one home loan you can potentially:
- Take advantage of a lower home loan rate, when compared to other lending options like personal loans
- Reduce the overall amount you pay each month across all your debts
- Simplify your finances with only one monthly repayment.
Be mindful that with a home loan top-up your mortgage repayments are likely to increase. If you opt to keep your repayments the same, your mortgage will take longer to pay off. In both cases, you will likely end up incurring more interest over the long term compared to other options.
Before making any decisions, why not leave it to the experts? Talk to us at Mortgage Link and let us make sure you’re making the right choice before signing on the dotted line.