Things to Consider Before Committing to Debt Consolidation Loan
1. There are no quick fixes when it comes to loans
Even though your goal might be to get out of debt as quickly as possible, there are rarely quick fixes when it comes to dealing with debt and there are, unfortunately, a number of companies that prey on vulnerable people. If it sounds too good to be true, it usually is. It’s vitally important that you deal with a company that’s reputable and trustworthy. At Our Mortgage Options, we will develop a solution that’s right for you, not a solution that pays us the highest commission, as sadly is the case with other some other providers. It’s in your best interest to understand the legal implications of loan contracts and what your long-term commitments will be. We make sure that we explain the information to you in every day language so you understand exactly what you're getting into.
2. Debt Consolidation loan is not right for everyone
There are as many ways out of debt as into it, and consolidating your debt is just one strategy which can work well in the right circumstances, but it’s not always the right solution. People who are already behind in payments or have defaults on their credit file may not qualify for a (prime) debt consolidation loan. There are debt consolidation companies that specialise in lending to people with poor credit histories, but these loans often attract higher than average interest charges, and so the repayments could become totally unaffordable. However if you have a good credit history, consolidating debt may be a good option for you. We will prepare a client needs analysis and do the research on all the loan products that you would qualify for, run the numbers and see if we can find you one that improves your cash flow and streamlines your payments without compromising your long-term financial outlook.
3. Is refinancing your home the way to do consolidate your debts?
Often people consider refinancing their home loan to pay off credit card and consumer debts as the most logical step. Pay off your consumer debt, consolidate your loans into one payment, and have more money left over at the end of the month. Unfortunately, it’s not always the best choice. Consolidating your debts into your home loan can certainly improve your cash-flow in the short term. But you must also consider the long-term consequences and costs. Compare these two scenarios:
Scenario 1:$20,000 debt paid off monthly at 15% interest pa = $8548 total interest paid over 5 years
Scenario 2:$20,000 added to an existing home loan of $250,000 - bringing the loan up to $270,000 - paid off monthly at 6% interest pa, over 25 years = an extra $18,658 in interest paid (Interest on $250k over 25 years at 6% is 223,226: interest on $270k would be $251,884)
As you can see, the effects of compounding interest can increase the overall repayment amount in the long-term. You may also be incur additional fees for refinancing and paying out existing loans.
What is the Best Way to Consolidate Debt?
The first step is to have one of our experts analyse your financial situation in detail. We’ll look at your debts, other expenses, income sources and your financial objectives.
We then review the current products and policies offered by our panel of lenders and if we feel that there are one or more solutions that will be of genuine benefit to you, we’ll provide you with our recommendations. We explain all the pros and cons in plain English, and if you want to proceed, we’ll help collating and preparing all the documentation and submitting your application. All for free.
Our Mortgage Options - Mortgage and Loan Solutions