Unifying all of your debts into a single loan is accomplished through the use of a debt consolidation loans. Your bank or another financing provider will pay the full amount of your obligations from all sources, including any running home loans, auto loans, and even credit card bills.
This means that you only need to pay just one recurring payment with a single interest rate. Debt consolidation helps you control your debt and lower the overall amount of interest owed, allowing you to pay off your obligations more quickly.
Of course, this does not imply that you will be on a smooth sailing path immediately. After all, you’re still in charge of paying back the debt—none of the principal payment is going away. But it does give you more control over your debt repayments. Coupled with a sound repayment plan and discipline to manage your expenses wisely, you can get your finances in order and ultimately be debt-free.
The Benefits of Debt Consolidation Loans Refinancing
1. Easy Financial Management
Debt consolidation loans help minimise payments and interest rates. Consolidation can also boost your credit by lowering your risk of late or missed payments. And, if you’re striving toward a debt-free lifestyle, you’ll have a better estimate of when you’ll be debt-free.
2. Low Interest Rates
Because credit scores improve over time, merging debts may lower your total interest rate. Shop around and look for lenders that provide a personal loan pre-approval process to guarantee you obtain the best rate possible.
Keep in mind that some debts have inherently higher interest rates. Credit cards, for example, have higher rates than student loans. This might result in reduced rates for some loans but higher rates for others. In this scenario, focus on the big picture of your savings as a whole.
3. Potential Payment Reduction
Consolidating debt reduces monthly payments since they are spread over a longer loan term. While this might help with monthly budgeting, it also means that even with a reduced interest rate, you may pay more over the life of the loan.
4. Potential Payment Acceleration
If you are wiser in managing your finances after debt consolidation, you can get around longer payment schemes of debt consolidation. Since you are paying lower interest rates per month, you’ll be saving more money. And if you avoid taking on any additional debt, you can make extra payments to be debt-free sooner. If you pay off your debt early, you can save money in the long run.
The Drawbacks of Debt Consolidation Refinancing
Refinancing is not without its drawbacks; you must consider the initial fees of refinancing, which may run to thousands of dollars every year.
Although the interest rate on a mortgage may be substantially lower than a credit card or auto loan, the interest will accrue over a significantly longer period. The general rule is that a longer loan period results in higher interest charges; thus, making more frequent repayments may help you save money on your loan instalments.
Some lenders may refuse to refinance your home loan to consolidate your debts if you are having financial difficulties. Contact the National Debt Helpline if your financial situation has deteriorated and you would like to discuss your alternatives.
Refinancing can bring you many benefits, and it is straightforward—you can move to a different loan with your current provider or transfer to a new one with more favourable conditions. Current market conditions are competitive, and there are many alternatives available that may provide better interest rates, fees, and features than what you now have.
At Mortgage Broker Home Loans, we have specialists available if you’re looking for debt consolidation loans in Melbourne. We gladly provide free, no-obligation quotations for your new mortgage needs. Contact us today!