Need a Mortgage Broker to Help Consolidate Your Debt?
Debt consolidation is a financial strategy that can help you manage numerous debts, e.g., home loan, personal loans, credit cards, etc. A Consolidation Loan is a single loan that combines a person’s multiple debts into a single loan amount – meaning they will only have one debt to pay off, at a single interest rate and at a fixed payment term.
Debt consolidation can offer several financial solutions, including budgeting assistance, better arrangement of loans and mortgage finance, informal creditor arrangements, personal insolvency agreements and bankruptcy assistance.
Please call First Choice Mortgage Brokers to discuss your Debt Consolidation opportunities and for any assistance in accessing the Debt Consolidation application process. Our goal is to establish long-term relationships with our clients by providing them with bespoke finance brokers knowledge and access to a variety of financial products.
How Will Debt Consolidation Benefit Me?
At the heart of debt consolidation is the interest rate you may be paying. Banks and finance companies charge higher interest rates depending on whether your loan is secured or unsecured.
Simply put, a secured loan is when an individual pledges a form of personal asset to the creditor, as a backup payment if they cannot make their scheduled loan repayments. In this situation, the lender will sell your promised asset to make up for the repayments. A secured loan’s collateral may include land, machinery, facilities, or vehicles, depending on the type of loan.
On the other hand, an unsecured loan does not have a pledged asset as a backup for loan repayments. If you haven’t pledged specific collateral as protection on your loan, your savings can be used to repay the outstanding debt if you can’t afford payments.
Depending on which financial option you choose will heavily influence your loan’s interest rates. Debts that are unsecured, e.g. personal loan and credit card interest rates, are usually 4-10% higher than a mortgage or home loan interest rate. If you can consolidate your debt under your mortgage, you will be paying substantially less interest.
Debt consolidation will also alleviate the pressure of making numerous debt repayments and reduce the amount you pay each month. For example, if you have two or more personal loans or credit cards with a total outstanding balance of $30,000, you are required to make repayments of approximately $800 per month.
By consolidating all your debts into a single loan with a lower interest rate and over a longer term, you may be able to reduce your monthly repayments substantially to approximately $550 per month and save $250 per month.
Repayment plans are often tailored to suit your budget and lifestyle needs. Debt consolidation can also provide budgeting assistance to help you keep on top of your repayments and avoid getting into further debt.
Things to Know for Your
Debt Consolidation Loan Application
Important factors to consider when considering a debt consolidation loan:
- The solution will have a real benefit to you and not just a short-term fix
- You have achieved control over your debts
- Your repayments will be reduced and not increased
- You are fully informed of the consequences of the steps you are taking
- There are no hidden costs within the debt consolidation loan
- You are better off as a result of the solution you have chosen.
Debt Consolidation FAQs
Do Consolidation Loans Hurt Your Credit Score?
In general, debt consolidation will not have an immediate impact on your credit score. That being said, if you make the repayments on time, this will have a favourable effect on your credit score in the long run, but if you fail to make the repayments, this may hurt your credit score.
It is best to speak with an experienced mortgage broker before jumping into debt consolidation, as we will help you get the best outcome from a debt consolidation process. Plus, it’s essential you only apply for a loan if you are relatively confident it will be approved since getting several loans denied will have a negative effect on your credit score.
When is it Smart to Consolidate Debt?
When trying to pay off debt, clients often have one burning question: “Is debt consolidation good or bad? But the answer is neither, rather debt consolidation is more effective for some people over others and should be assessed on a case-by-case basis.
Some of the situations in which a debt consolidation loan is a good idea is when:
- You have several loans and have trouble managing them.
- You are disciplined about making monthly payments.
- You’re having trouble keeping up with all of your fees and expenses.
- You are paying an exorbitant interest rate. Credit cards, in particular, have high interest rates.
- You’ve made a budget and have determined how much you can afford to pay each month.
- You are able to avoid getting into the same debt situation again.
To succeed with a debt consolidation loan, you must recognise what financial habits contributed to your present condition and work on improving those habits, so you don’t end repeating the same behaviour.
Remember that a debt consolidation loan is not a line of credit because you cannot re-use the money you have paid off like you might for a credit card. If you use a consolidation loan to pay off your credit cards, it is your responsibility not to use them again. If this is going to be a problem for you, you should think about closing the accounts.
When is Debt Consolidation a Bad Idea?
When it comes to debt consolidation, having good or bad credit will make a significant difference.
Consolidating loans with poor credit is not a good idea. If you have a poor credit score, it would be difficult to get a low-interest loan to merge debts. Although it might feel good to have only one loan payment, a higher-interest loan could make your financial condition worse rather than better.
In addition, debt consolidation might be a bad idea for you as there are some disadvantages to a debt consolidation loan. Some disadvantages include:
- The possibility of incurring further debt. When you consolidate your debts, you free up your credit. However, if you are not cautious, you might end up spending more and accumulating much more debt than you began with.
- You might spend more money overall. Even though a personal loan will help you lower your monthly costs, however, a longer loan term means you might pay more interest and spend more overall.
- Your credit score might suffer as a result. If you fail to make your monthly payments on your personal loan, you could end up harming your credit report or, worse, finding yourself in considerable financial difficulty.
If you require further assistance, please do not hesitate to call First Choice; we are leading Sydney mortgage brokers who do everything possible to assist our clients!
Speak to a Mortgage Broker
You can make an appointment with a First Choice Mortgage Broker consultants by calling 1800 111 455.