Thursday, 3 March 2016
||It’s an expensive world that we live in and it’s no wonder that being in debt has become a normal part of our lives, however don’t let yourself become overwhelmed with your financial commitments. By consolidating your debts, you minimise the amount of loans and repayments you have to worry about and you will be taking the first step towards financial freedom.|
Although many Australians are struggling with debt, recent findings from finder.com.au reveal that Australians are complacent when it comes to debt consolidation, change is possible if you’re committed.
Michelle Hutchinson, money expert at finder.com.au says “There is no reason for people to be piling on a debt they can’t see their way out of. While Australia has a combined credit card and personal loan debt of over $109 billion, up by about $2 billion over the past year, it’s not too late to dig your heels into the ground and find a way out of debt.”
“Australians need to be more conscious about the amount of debt they are getting themselves and their families into and work out how they will pay it back before they reach retirement,” Hutchinson adds.
There are many ways that you can consolidate your debts, the most effective being with an increase to your home loan. By using the equity in your home to pay out all of your debts, you only have one loan repayment to worry about. Plus with the average home loan interest rate being much lower than that of a personal loan or credit card you can start saving on interest as well.
Before you look at consolidating, take the opportunity to review your home loan as well. You may be after some extra features that your current lender doesn’t provide, like 100% Offset accounts or ability to pay extra and free redraw, so now is a good time to shop around. It’s also a good idea to work out how much equity you have, you can achieve this by using tools like free property reports.
Some key areas you need to consider to effectively consolidate your debts:
- Ensure credit cards are closed off straight away or you could run the risk of putting new debt onto your cards.
- Consider splitting your home loan and use the new loan to consolidate your debt.
- Also consider taking out this new home loan split over a shorter term. By spreading your credit card or personal loan over a 30 year term you end up paying more interest, so it’s a good idea to keep the consolidated loan portion separate and over a shorter term so you can still get the benefits of combining your debts.
To keep ahead of the game, it’s important that old spending habits don’t return. Try and pay off your new loan as soon as possible and get rid of those debts once and for all!