Debt Consolidation
What is debt consolidation?
It means combining lots of other loans into your home loan
Other loans you may combine include:
- Credit card debt
- Personal loans
- Car loans
- HECS debts
- Tax bills
- Bank overdrafts
Why do people do it
People do it to reduce their monthly outgoings. Monthly outgoings are educed because:
- Lower rates - they can do this because the interest rate on home loans (eg, 6.5-8.0%) is much lower than the rates on other types of consumer debt (eg, 10-20%)
- Longer loan term – home loans can generally be taken over 30 years (depending on your age). Other loans either have no term or have short loan terms
Considerations
- Is it cheaper? – just because your repayment is lower doesn’t mean something is cheaper. Eg, you will most likely be paying less interest per month – but over a longer period of time. This means that in the ‘long term’ it may be more expensive
- Approval chances - a lender needs to be comfortable with you consolidating several loans into your home loan
