If you have multiple loans, it may sound like a good idea to roll them into one single debt. This is called debt consolidation, and it can make your debt management easier. Today we are going to discuss some tips for Debt Consolidation.
1.Check the Comparison Rate
New interest rate looks tempting? Check the comparison rate.
Wonder why there is always a comparison rate next to the interest rate? A comparison rate includes interest rate as well as fees and charges relating to a loan. And it aims to help you identify the true cost of a loan.
If the comparison rate for the new loan is higher, you might end up paying more after the debt consolidation.
2.Look for Hidden Costs
Some loans might have other hidden costs, including:
Penalties for paying off your original loan early;
Application fees, legal fees, and also account keeping fees;
Valuation fees and discharge fees for secured loans.
And also beware of switching to a loan with a longer fixed term. The interest rate may be lower, but you may pay more in interest and fees in the long run.
3. Credit Card Balance Transfer
A credit card balance transfer is when you move the amount you owe on a credit card to another credit card. The new interest rate on the balance you transfer may be either 0% or a special low rate for a limited time, which potentially could save you lots of money.
But still be mindful that the outstanding balance will be converted to cash advance rate, if you can’t clear the card balance within the transfer period.
4.Turn the Debt into a Secured Loan
It is common for people to refinance their home loans with cashout to repay credit card debts, car loans or personal loans. If you have already paid down some of your mortgage debt, or if your property value increased in the last couple of years, you can refinance for a new loan at maximum Loan-to-value ratio so the extra funds can be used to repay your other unsecured loans.
Home loan has a much lower interest rate (between 6% - 7%), compared to other unsecured loans (10% or more). And most banks offer cash back and higher rate discount for new home loan refinances.
5. Ask Your Credit Providers for Assistance
If you're struggling to pay your debt, talk to your credit provider (lender) as soon as possible.
All lenders have assist programs to help you in tough times. Ask to speak to the hardship team about a hardship application. They may be able to extend your loan term, or reduce/ pause your repayments for a while.
6. Get professional advice
There's free help available to help you get back on track:
NSW health authority offers free mental health support, and the health professional will answer your call about mental health concerns for yourself or someone you are concerned about;
Free financial counselling is offered through selected government and community organisations, such as the National Debt Helpline or the Salvation Army;
Free legal advice is also available at community legal centres and Legal Aid offices across Australia.
Questions about debit management? Talk to your financial manager or mortgage brokers if you are unsure, and always seek professional advice when necessary.
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