Debt consolidation tips

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.

Reference: Westpac

6 features to look for in a home loan

In the market for a property? Knowing what you want from your home loan as well as your home can help you get the best deal.

One of the first things you’re likely to look at when comparing home loans is the interest rate. While the rate is undoubtedly a very important part of your home loan, there are some other important features that can make a big difference and even save you money over time.

Here are just some of the features that can mean the difference between a good and a great home loan.

1. Flexible repayments

Do you want to be able to manage how frequently you make repayments? The capacity to choose how often you repay (weekly, fortnightly or monthly) means you can match your repayments to your pay cycle, which can help give you greater control of your finances.

2. Additional repayments

At some point throughout the life of your home loan you may find yourself coming into some unexpected money. Being able to put this money towards your home loan on top of your regular scheduled payments can help you save on interest and ultimately pay off your home loan faster.

3. Redraw facility

Some home loans let you not only make additional repayments but also redraw these repayments should you need the cash. This can serve two purposes – it can reduce your interest repayments (the lower your outstanding debt, the less interest you’ll have to pay) while also providing you with a ready reserve of funds if you need them at some point in the future.

4. Repayment holiday

A repayment holiday is a break from making your home loan repayments for those occasions where you may need to direct your cash elsewhere – perhaps because your partner is going on parental leave, for example, and you’re moving from a double to a single-income household for an extended period.

There may be some conditions around this; with CommBank, for example, you may be able to take a repayment holiday of between 3-12 months if you’ve made enough additional repayments.

5. Offset account

Typically, an offset account is a transaction account linked to your home loan into which you can get funds paid and use for your daily expenses. The difference between this and a regular transaction account is that any money you carry in the account is offset against your home loan balance, so you can pay less interest on your home loan while still having easy access to your money.

6. Access online and on the go

Being able to find out what you need to know, and when you need to know it, is one of the great drawcards of the internet age. And when it comes to your home loan, the ability to check your balance or make changes when you need to through an application on your phone – like the CommBank app, for instance – can save you a lot of time and hassle.

 

Source: Commonwealth Bank 05 APRIL 2017