You might be surprised by how much you could save on the cost of your loan by moving it or repaying early – even if there are extra charges for doing so. Financial Planner Melbourne will help you take a look at your potential options below on debt consolidation.
Understanding Debt Consolidation
The combining of several unsecured debts into a single, new loan that is more favorable. Debt consolidation involves taking out a new loan to pay off a number of other debts. The new loan may result in a lower interest rate, lower monthly payment or both. Consumers can use debt consolidation as a tool to make it easier to get out of student loan debt, credit card debt and other types of debt that aren’t tied to an asset.
Some loans are specifically advertised as debt consolidation loans – these allow you to merge your loans into one. Consolidation loans are now much harder to obtain and should only be considered once you have explored all your other options as they are usually secured against your home. And while they can seem an attractive option because of lower interest rates and repayments, they can often cost you a lot more in the longer term than sticking with your current loans and you risk losing your home if you cannot keep up the repayments.
Common Pitfalls
It’s also all too easy to consolidate your debts and then go and build up more debt elsewhere. You have to know how you’re going to repay before you consolidate – and then stick to your repayment plan. If you need help with your debts, contact a financial planner Melbourne.
There are several pitfalls consumers should consider when consolidating debt:
– Extending the loan term. Your monthly payment and interest rate might be lower, but you might pay more interest in the long run if you take longer to pay back what you owe.
– Continuing to spend beyond your means. Consolidating debt alone does not get you out of debt; improving spending and saving habits is key. Put your old credit cards in a drawer so you won’t use them and don’t apply for new ones to avoid getting back into debt.
– Using a home equity loan or line of credit to consolidate consumer debt. While these loans offer low interest rates and deductible interest for taxpayers who itemize their deductions, they also put your home at risk if you fail to make the required payments. Be very cautious about taking this route. It doesn’t make sense to lose your house because you couldn’t pay your credit card bills.
– Paying expensive fees to a debt-consolidation service. You can consolidate your debt yourself for free with a new loan or low-interest credit card.
– Consolidating debt for convenience. The simplicity of a single monthly payment is not a sufficient reason to consolidate debt.
A reputable financial planner Melbourne can help consumers consolidate debt wisely and at little cost. The organization can negotiate more favorable terms with creditors to help you get out of debt faster and at lower cost. It also can manage repayment for you so you’re less likely to have late or missed payments that accrue fees and more interest.