If you find yourself struggling to make your loan repayments because your debts are starting to pile up, a debt consolidation can help you manage your debts more easily.
What is a debt consolidation loan?
This is a type of loan where you borrow money secured against your home to pay off all your other debts. So if you have credit card debts, personal loans, car loans, and a home loan, all of these debts will be consolidated into one, relatively-low-rate home loan repayment. Rolling your debts into a single repayment has its benefits, here are some of them:
- It helps you manage and organise all of your debts by bringing all of your loans together.
- A debt consolidation may have a lower interest rate because debts are all charged at a home loan interest rate.
- It may improve your credit rating if implemented correctly.
How does it work?
As a example, imagine you have two credit cards with different limits and interest rate. Plus, you have a car loan and a home loan you’re paying off. With four monthly financial obligations, it can get overwhelming to handle all of these, and it can be difficult to manage your cash flow.
One way to solve this problem is by refinancing your home loan to combine your existing loans with your new mortgage. This can make your loan repayments more affordable. However, it’s important to take note of the refinancing fees it will cost you.
You may need to pay for discharge fees for breaking from your current home loan, as well as government fees. There will also be upfront charges when refinancing. These can range from application fees to legal fees, depending on your new lender.
You will also need to supply necessary documents to your new lender. So it’s best to contact your new mortgage provider about the associated fees and the needed paperwork when you refinance with them.
Repaying more than one loan is not uncommon, but if you find yourself struggling to repay all of your debts, then a debt consolidation is worth considering.