What you need to know about debt consolidation

Rising levels of debt and finding ways to manage it is a concern for many of our clients. For some, it’s aiming to improve their credit score when applying for a mortgage or government home ownership scheme. For others, it’s being able to cover rising mortgage repayments or unexpected expenses.

Fortunately, there are a number of ways to manage debt, including debt consolidation and accessing home equity. Here are some things you need to consider when making a debt management plan that’s right for you.

Work out your debt management plan

It can be confronting seeing your financial situation laid bare, but it’s impossible to create a workable debt management strategy if you aren’t clear on your total debts and expenses. That means making a list of your debts, their current interest rates as well as your income and valuables. And don’t forget, lenders will want to see at least 6 months’ worth of recent bank statements anyway.

Once you have a full picture of your finances, you can begin to look at your debt repayment options. Part of that plan may mean prioritising which debts to pay off first, switching to a cheaper or drawn down mortgage and combining your debts into one consolidation loan that reduces the interest and fees you’re paying. It may also mean cutting back on non-essential spending.

What are the benefits of consolidating your debts?

Debt consolidation involves combining several debts including any personal loans, credit cards and your home loan, into one loan. It can make your repayments simpler to keep track of, with a single reoccurring repayment, rather than multiple payments with different interest rates to stay on top of.

Consolidating multiple debts into one loan also provides a timeline of when you can be debt-free and can give you greater control of your budget, by reducing costs such as a lower total interest rate and fewer fees.

If you’re concerned about how your debts are impacting your credit score, consolidating into one loan may be beneficial. While it may initially lower your credit score, over time it will likely improve as it’ll be easier for you to manage your repayments.

However, debt consolidation is not appropriate in all circumstances, so it’s important to consider whether it’s for you.

Considerations when considering debt consolidation

While streamlining your debts can sound like a no brainer, there are some risks and considerations before undertaking the process, largely will you be financially better off?

Initially there may be upfront costs such as balance transfer fees, closing costs and new loan fees and long term you may end up paying more interest overall. When you consolidate your debts into one loan and extend the length your loan to reduce your monthly repayments, you will end up paying more interest and spend more over the lifespan of the loan.

Debt consolidation and your credit score

If you already own property, remortgaging to a lower interest rate is something to look into. After all, even on today’s interest rates, your mortgage is lower than your credit card or personal loan repayments.

You have probably seen your equity rise over recent years, so freeing up that money via a draw down facility can look like a no-brainer. However, lenders don’t see things that simply. Lenders have to decide if you can manage the larger loan and like to see proof that you are managing your money well. They give just as much weight – maybe even more – to your credit score when deciding if you are suitable candidate.

Your credit score takes into account the amount of debt you already have and if you are struggling with existing repayments. It’s a good idea to assess your credit score before applying for a new loan to consolidate your debts and risking getting your loan rejected, as that lowers your rating.

We’re always happy to help you assess whether you are a strong candidate for a new home loan to assist you in taking control of your future. Simply give us a call to get started.

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

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Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.