Debt Consolidation has become very popular with Australians as a method to reduce monthly debt repayments and ease the financial strain on Aussie families. However before considering any form of debt consolidation the applicant needs to perform a costs/benefit analysis as having a consolidated debt by no means provides a guarantee of debt reduction nor reduced repayments.
Forms of Debt Consolidation
Some forms of debt consolidation, for example refinancing unsecured debts into your mortgage, does not reduce your levels of debt, rather what it does is reduce your monthly repayments. Home loan interest rates are lower than the applicable rates to unsecured loans and to credit cards, consequently consolidation of these into the mortgage can significantly reduce the overall periodic repayment. This is especially the case if your mortgage is paid on an interest only basis. However while this makes your repayments more affordable it does not reduce your overall debt and this is important to understand.
Debt consolidation of several credit cards into a single personal loan can substantially reduce your repayments but requires the borrower to have a clean credit history and sufficient income to qualify for the new loan. A Debt Agreement, also known as a Part 9 Debt Agreement, will effectively reduce both your level of debt and your monthly repayment obligations, however this form of debt consolidation is damaging to your credit history.
Debt Consolidation is easier with a rate cut
While most Australians are not going to feel the impact of yesterdays rate cut for some time, debt consolidation may be both cheaper and easier, with the new interest rates.
People with a large number of unsecured debts as well as a mortgage could always look into debt consolidation by consolidation their unsecured debts into their home loan. Now that the home loan rates have been reduced by most lenders, debt consolidation into the mortgage will be even more cost effective.
If your current lender does not want to consolidate your unsecured debts, ask others. If you do find a lender willing to assist your reduction in monthly repayments could be rather significant.
Whats more, if you could not qualify for the debt consolidation loan you were after previously, now with a lower interest rate you may just be pleasantly surprised.