Debt consolidation involves consolidating a range of different debts into one single loan that has a lower overall interest rate. The greatest advantage of this is the potential to enjoy savings on the monthly repayments, potentially cutting hundreds – even thousands of dollars from your overall interest bill.
There are other benefits as well. You could save on loan fees and charges because you only pay the costs for one loan instead of several sets of ongoing fees. You’ll also only need to make one monthly repayment and deal with one lender and one set of loan statements which should simplify things for you.
Consolidating debt into a home loan is pretty common, mostly because of the attractive interest rates. But it depends on your specific circumstances and for smaller debts a personal loan or a credit card transfer might even do the trick.
For example and making a few assumptions, by consolidating a home loan with your credit card debt (assuming there is enough equity in your property) monthly repayments could fall by more than $100 each month.
Being disciplined and using savings to pay off your debt earlier will help you avoid one of the major pitfalls in debt consolidation – where you extend your debt over a 25 or 30 year mortgage term and end up paying more interest. That could turn a short term debt into a long term one so it can’t be stressed enough, how important it is to keep it on a shorter term and pay it off as quickly as you can to enjoy the full benefits of consolidation.