Debt consolidation is the process of consolidating all your existing debt into a single loan rather than pay them off as multiple loans each with their rates of interest. On a surface level, it might make things easier to manage as you only have a single loan to keep track of repayments for. However, it can potentially make things worse for you if the interest rate of the consolidated loan is higher than the unconsolidated interest rates. As a result, there are a few considerations to keep in mind when considering debt consolidation.
Potential for getting deeper into debt
The greater amount of credit that you often get with debt consolidation comes with a greater potential for spending and acquiring even more debt.
Losing a home
If you merge all your unsecured debts with secured debt like a home loan, you could potentially lose your home if you aren’t able to pay off the new debt.
Review all interest rates, fees and charges
Make sure you’re aware of every little fee, charge and interest rate change associated with your consolidated loan so you know if you’re paying more. Often your consolidated loan may seem like it’s cheaper on the surface, but underneath there can be a lot of hidden legal fees, fees for paying off your loan early, application fees, valuation and stamp duty.
Debt consolidation can be a great way to help you manage all your debt. However, it’s not necessarily a cheaper way to do it. Ensure you speak to a broker to know if you’re getting the best deal you can.
If you’d like to learn more about how you can manage your money and consider debts consolidation, book a chat with Nicole to discuss your unique situation.