As Mortgage Brokers, we aspire to ensure that our client’s credit facilities sufficiently meet their current needs and objectives. One of the means by which we achieve this, is through debt consolidation.

What is Debt Consolidation?

Debt consolidation is the process by which multiple liabilities are combined into one larger debt. These liabilities typically include personal loans and credit card debts, which have higher interest rates. Generally, debt consolidation is best suited to those struggling to meet and manage the multitude of repayments. Difficulties with management can be due to poor organisation, high repayment amounts or simply being overextended.

These liabilities can be combined into either a cumulative personal loan, or through refinancing your home loan. As Mortgage Brokers, we can assist our clients with debt consolidation, as well as inform them of the potential risks associated. Upon assessing your circumstances, we can determine whether or not debt consolidation is a viable option for you. Additionally, we also examine whether or not you will be able to meet the repayment, ensuring that you are not placed in a position of hardship.

Why Should I Consider Debt Consolidation?

In addition to making repayments easier, debt consolidation may also reduce your monthly financial liabilities, therefore, improving your monthly cash flow. Furthermore, the consolidation of debts can also help an individual qualify for a home loan. Additional reasons to consider debt consolidation include:

Simplicity: With debt consolidation, only one repayment is deducted. Overall, this makes it easier to manage your monthly commitments and thus, reducing the likelihood of the penalties associated with late repayments.

Savings on Interest: Typically, liabilities such as personal loans and credit cards have higher interest rates. Through debt consolidation, lower interest rates can be achieved and therefore, resulting in less interest paid.

Lower Repayments: The lower interest rates associated to debt consolidation results in lower monthly repayments. This in turn makes it easier to meet repayments, and increases the amount of disposable income available.

Points to Consider:

Should you decide to consolidate your debts in order to repay credit card debt, it is recommended that you then cancel these credit cards. This recommendation is intended to prevent further incurrence of debt, and thus, further worsening your overall financial position. This decision however, is left completely at your discretion.

Furthermore, whilst debt consolidation may make your monthly repayments lower, it may mean that you are making repayments over a longer loan term. Associated with these longer loan terms, are greater interest costs. Additionally, if you decide to consolidate your liabilities through refinancing your home loan, the risks associated with failure to make repayments also increases.

Lastly, it is important to recognise that by consolidating your debts, you are not resolving the debt, but rather reducing the burden of repayments and management. Improvement of your financial position is largely dependent on establishing good budgeting practices.

Presented below are a variety of resources that may aid your understanding of debt consolidation, as well as establish good bugeting practices.