Debt Consolidation Advice
Debt Consolidation can help your Cash Flow
Some people find they have borrowed more than they can comfortably repay, and they’re in danger of Home Mortgage defaulting.
A simple solution may be to refinance your home loan, as well as consolidating any other debts (which have a significantly higher rates of interest).
Do the numbers first and if a good cash flow benefit is generated by refinancing then seriously look at the exercise before you get into real difficulties with your mortgage and your credit history becomes compromised.
If there is a cash flow benefit, then obviously a refinance makes your home loan more manageable. It's also simple, providing one consolidated monthly repayment, rather than a number of different repayments.
If cash flow is a real problem, you can also consider seeking an interest only period from your existing lender while you work your way through difficult times.
A debt consolidation home loan can help to minimize the likelihood of any future Home Mortgage Default.
Case Study 1 Drowning in Debt!
A few years back prior to buying my first home, I bought my first car and around the same time, I applied for my first credit card.
Whilst this was my only option at the time due to a lack of savings, and it wasn’t such a big deal because it was my only financial commitment.
Things have now changed and with the rising home loan interest rates, I have suddenly found my monthly repayments for all of my debts are causing a problem with my cash flow. So who did I turn to?
I approached my home loan lender for a solution and they recommended a debt consolidation home loan.
It sounded good to me, but what is debt consolidation?
The first thing I needed to have before I could look at debt consolidation was equity in my home, which fortunately I did have. What my lender was basically going to do was to pay out my car loan and credit card and roll these amounts into my debt consolidation home loan.
There were two reasons why debt consolidation was the right option for me. Firstly, because it put all my debt with one financial institution which made it easier to keep tabs on. Secondly (and most importantly), it substantially increased my available cash flow each month.
The debt consolidation home loan is a secured loan against my home over a thirty year period whereas the credit card and car loan are both unsecured and repayments are calculated on a much higher interest rate and shorter loan term (car loan that is). The debt consolidation monthly repayments were therefore far less per month.
This all sounded too easy to me so I needed to ask my home loan lender about the downsides...
Because I was paying less per month but over a longer period of time, I was in fact paying more in total interest over time. However, I was able to maintain my repayment commitment most of the time, which meant that I was paying more back into my loan that I needed to. By doing this, I was able to draw on those “additional” funds at times when things got a little tight. But because cash flow was my biggest concern the pros certainly outweighed the cons and a debt consolidation home loan was the right choice for me.
In summary, debt consolidation is an option available primarily for anyone who is looking for an improved cash flow. Other factors such as limiting the number of lenders you deal with for bookkeeping convenience and perhaps ridding yourself of that dreaded “maxed up” credit card should also be considered.
So if you find that you are struggling to ‘keep your head above water’ in the current climate, then a debt consolidation home loan is something you should seriously think about.