Benefits of consolidating your finances to reduce your outgoings

With everything going on in the world around us right now, It’s a good time to stop and have a think about your finances to see if there is something better for you.

Now is a good time to reduce all of your outgoings, especially if you are juggling multiple debts.

One way to simplify your finances and reduce your outgoings is to bring all your loans together. This is known as debt consolidation. Not only could this make managing your finance easier, but if you structure your repayments correctly, it could also save you so much money in interest over time. Also when consolidated into your mortgage could help you pay your mortgage faster.

So what exactly is debt consolidation?

Debt consolidation is when you combine all of your outstanding debts into one simple loan, instead of paying off different loans separately like credit cards, personal loans and car loans all at different interest rates and with different lenders.

Benefits include:

• You will only have the one loan to manage, so only the one regular payment per month.
• You won’t have to worry about different fees for different loans.
• You only have the one interest rate.
• If consolidate all your debts into your home loan, you could pay less interest each month and reduce your monthly outgoings (home loans now are lower than most other loans)
• If you adjust the way your loan is structured, you could actually pay off your mortgage faster.
• You will be able to free up some cash each month that would have been used on paying interest on other debts.

In June, last year I met a lovely couple. They came to see me to help them get a lower rate, as the rates were on the way down. The husband had just had his work hours returned to normal as they were reduced during Covid. When his hours were reduced, like many Australians they relied on their credit cards which they had managed to max out by the time his work returned to normal. They had a home loan, 2 credit cards and a car loan. The credit cards were at such a high rate that they felt like they were paying them every month but could not bring down the balance owing. They just could not get back on top of their finances.

So we sat down and assessed their situation. They had good borrowing capacity and equity in their home. So we consolidated their credit cards and car loans into their mortgage. But we structured their loan into 2 splits. One for the home loan and one for the consolidated debts which was over a shorter period of time. This helped save the clients close to $700 per month in interest repayments and also gave them the peace of mind in knowing they had only the one lender to pay each month. At Christmas time when I checked back in on the clients, they were so happy to tell me that they had savings in their offset account that they would never have been able to have if they didn’t consolidate their debts and had also been able to make extra repayments on their home loan.

Important things to consider before consolidating debts:

• If you consolidate the debts into your home loan, your home loan balance will increase.
• Consolidating your debts into your home loan will most likely increase your LVR (Loan to value ration) This could end up changing your interest rate.
• Always make sure your debt consolidation doesn’t increase your loan to above 80% of you will end up paying Lenders Mortgage insurance.
• Ever situation is different, so make sure you explore your options.

Speak to one of our debt consolidation and lending specialists to see how we can help you explore what options are available for you to minimise your outgoings to reduce your debts, It’s never been a better time to get a better loan and see what works better for you.

Author: Amanda Liszewski, Lending Specialist, Better Homes and Gardens Home Loans

**The information provided constitutes information which is general in nature and has not taken into account any of your personal objectives, financial situation, or needs, please feel free to give our lending specialists a call to see how we can help you.