Tips for Debt Consolidation

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In recent years we’ve seen a significant change in how Australian’s manage their finances. More borrowers are abandoning the notion of doing all their business with a single lender and instead are choosing to borrow from a variety of providers who offer the product they need at a time and place to suit the customer. 

Whilst this change looks to be the perfect customer centric solution, the reality for many of us is that it creates a monthly (or more frequent) series of tasks to manage multiple accounts including checking the repayments are received by their due dates and keeping an eye on the fees and charges that seemed incidental when the account was opened but now seem to be annoying.

As we approach the end of the year, it’s quite common for people to conclude that the burden of managing their various accounts just isn’t worth it or is simply unmanageable. If this sounds like you, and you feel like it might be time to simplify your finances and consider consolidating your debt.

Some of the benefits of debt consolidation can be;

  • It simplifies your finances into a single account with a single statement
  • It allows for repayment frequencies to suit your cashflow/pay cycles
  • It may reduce the overall interest rate for your borrowings and have fewer/lower fees
  • You could have a more suitable loan product which may include features such as redraws, offset accounts and card or cheque access. This can be one of the most important considerations as it can future proof your financial
  • It can free up some cash flow too by lowering your repayment obligations

These benefits make the idea of consolidating quite appealing and are the reason we see an increase in consolidation enquiries at this time each year. 

If you are considering consolidating your finances, there are some important things to consider. It is important to consider the following: 

  • Prospective lenders will be interested in how you have managed the accounts to be consolidated. They will likely ask for statements of the accounts being paid out to check your repayments have been made on time. If there have been issues, such as late payments or dishonoured payments you should be prepared to explain what happened. In some cases, it may be best to wait until you can show three months of ‘on time’ repayments before
  • Consolidations are also a way to reduce your repayments especially if you have some accounts with shorter terms. Note that some lenders may be reluctant to let you spread a current ‘short term’ debt over a longer Be prepared to be specific in explaining your preference to lower your repayments if the question arises.
  • A lot of banks offer balance transfer options with 0% interest for a certain period of time. If you are considering this option, it is important to work out whether or not you can pay off the debt within the interest free period, otherwise the remaining balance will incur a higher interest rate once the interest free period is over. 

As you can see, there is some complexity to getting the right outcome from debt consolidation. Whilst some consumers will feel comfortable to work through this with a lender directly, often its best to seek advice from a financial advisor you trust.

Once you have your consolidation plan in place, there are some important tasks that need to be completed to ensure you get the best outcome, and potentially avoid problems down the track. These include;

  • Take a moment to consider what repayments you want to make and how often. Ideally pay more than the minimum so you can build a
  • Check to see that the loans you are consolidating are completely paid in full by the payment from the lender. Often some additional interest or a fee can leave the account open, adding further avoidable interest and fees over
  • If you have consolidated a secured car loan and the vehicle is no longer security for a loan, you may be eligible for discount on your insurance premium – talk to your insurance company and ask

As you can see, there are real benefits available from consolidating loans or credit card debt, but it can be complex. The team at Preston Finance and Insurance are ready to help you to get the right outcome for your circumstances - please don't hesitate to reach out to us for a no obligation discussion.