The Mortgage Agency
If you feel like you’re becoming overwhelmed by your mortgage repayments and other financial obligations, a viable way out could be to undertake a debt consolidation strategy.
Consolidating debts means combining multiple debts into one payment, such as credit card debt, car loans, and personal loans, so that you only have to manage one monthly repayment instead of multiple loans. Generally, this means you also get a lower interest rate.
Having one repayment makes your finances more manageable and easier to keep track of. But be aware that it will end up being more expensive in the long run if you apply a longer loan term to that debt, so don’t take on more than you can handle.
Check Your Credit Score Before Undergoing Debt Consolidation
Your credit rating reflects your liabilities and whether you have honoured them well in the past or not. Any missed payments will negatively affect your credit score.
It’s a good idea to check your credit score yourself before you apply for a debt consolidation loan. You might find that you’ve forgotten about missed payments in the past and, therefore, prefer to wait a bit longer before you apply so that you can build a good credit history first.
A bad credit score could lead to a declined debt consolidation loan application, so taking the time to ensure your credit score is good before applying can work in your favour.
What Debt Consolidation Loans Are There?
There are different products and features attached to loans that consolidate debts, so it’s important to find which one suits your financial situation and existing debts the best. Below, we break down the most common types of personal loans you’ll find in the current market.
Fixed Interest Rate
A fixed interest rate loan locks in the interest rate at the time of signing for the full loan term. This means that the interest rate on your personal loan will stay the same regardless of whether the cash rate goes up or down. This works to your benefit when rates rise, but can be detrimental if rates drop as you will pay more.
Loans with fixed interest rates aren’t generally very flexible as they don’t offer extra features. For example, paying off your personal loan early could result in early repayment fees and penalties.
Variable Interest Rate
A personal loan with a variable interest rate is prone to fluctuation, as per the cash rate. This can be a good thing if it goes down, but there’s always the risk of the interest rate rising, and you’ll have to pay more in your personal loan repayments.
Variable interest rate loans typically offer additional features like an offset account or a redraw facility. These are accounts linked to your loan that are similar to a savings account. The funds are offset against the balance of your loan, potentially saving you thousands of dollars in interest.
Secured Personal Loan
A secured loan is secured by an asset, for example, property or equity. If you aren’t able to honour your monthly repayments, the asset secured by your loan will be repossessed in consolidation.
Secured loans are a lower risk to lenders as they make all their money back, so they often provide them at a lower interest rate.
Unsecured Debt Consolidation Loan
An unsecured loan doesn’t give the lender any security about the risk of the borrower defaulting on their payments. Therefore, using unsecured personal loans to consolidate your debts can be expensive and may attract higher interest rates.
The reason why people opt for an unsecured personal loan is that if things go south, their assets aren’t at risk of repossession by the bank, or they simply don’t have a property or sufficient equity to consolidate these loans.
Credit Card Balance Transfer
You can contact your credit provider and request to transfer your existing credit card balance to a new credit card.
A balance transfer allows for a low or 0% introductory interest rate for an agreed-upon period. The more money you’re able to pay off during this time, the better, because you’ll save on interest costs and fees – but once the period is over, these can increase significantly.
The brokers from The Mortgage Agency apply a personalised approach to each customer. We’ll help you decide which type of loan and features will best suit you and your situation. A professional can help you through the application process, navigate the fees and charges, and help you work out a fortnightly or monthly payment plan according to your financial situation. We’ll help you put the right strategies in place to pay off your debt sooner and stay out of further debt.
Take Control of Your Finances Today with Debt Consolidation
Although a personal loan to consolidate debt can take more time to pay off and could end up being more costly in the long run if not structured properly, if it’s utilised correctly, it can be a great tool to manage multiple existing debts in one holistic place.
Once you have decided which debt consolidation loan to apply for and you’ve been approved, it is absolutely crucial that you pay off your creditors immediately. It’s a good idea to prepare a budget every month and detail your repayment goals to help you remain on top of your finances.
Understanding all the different personal loan products and features is a whole lot easier with the help of a mortgage broker. The professionals at The Mortgage Agency are highly qualified and have years of experience assisting people with debt consolidation loans.
We can provide insight into fixed and variable interest rates, secured and unsecured loans, and look at your personal circumstances to determine which one will be the most appropriate one for you.
Debt consolidation can be risky and cause a lot of stress if things go south. It’s best to consolidate under the guidance of a professional mortgage broker who can help you through the process. If you’d like more information, contact our friendly team and we’ll explain it to you in detail, answering any questions you may have along the way. We’ll help you save money and become debt-free sooner.