If you’re battling with the stress and hassle of making all of your repayments on credit cards, personal loans and car loans, consolidating all your debts into your home loan may save you both money and time.
By consolidating your debts into your mortgage, the interest rate you’ll be paying for your credit cards and other debts will be much lower – and that’s one of many benefits of bringing all of your debts “under one roof”, says mortgage broker Vanessa Wenham, director of Soul Finance.
“You can spread repayments over a longer term, keeping your monthly payments lower and more manageable,” she says.
For instance, if your home loan is $300,000 with a 30-year term, your current repayments would be around $2,000 a month.
If you refinance $25,000 worth of personal debts into your mortgage, your monthly repayment would increase by $160 per month, to roughly $2,160 – but you’ll do away with all of those monthly car loan and credit card repayments that have been dragging down your budget.
“With only one repayment to organise each month, you won’t have the stress of keeping track of multiple payments and balances,” Wenham says.
“However, you need to recognise that if you have multiple debts in the first place, you should be looking at your spending habits and learning to be more disciplined.”
For those who are considering debt consolidation, she suggests that you create a strategy to ensure that you don’t end up in exactly the same place in 12 months time.
“Cutting up your credit cards is an important step towards learning to live within your monthly income,” she says.
“You may want to seek professional advice around budgeting, too, making sure you take it on board, as being in control of your money and debt-free gives you peace of mind.”
Whether your debts have accumulated from spending on essentials, like an unexpected medical bill, or splashing out on a few not-so-necessary luxuries, it’s important that you look at your circumstances and take steps to make sure it doesn’t happen again.
“Changing your spending habits and sticking to a budget is vital,” Wenham says.
“Once you’ve consolidated your debts under your mortgage, your home could be at risk if you’re unable to keep up with your repayments, so talk to your broker about finding a lower rate option to keep your payments realistic.”
To get working on a healthy future for your finances, contact assist@soulfinance.com.au for a free eBook copy of “The 7 Habits of Healthy Debt”.