Getting on top of your debts

A home loan can be a big commitment. If, on top of that, you have a personal loan, car loan and a credit card, then keeping on track of monthly repayments, outstanding balances and interest rates can be quite a juggling act!

Disclaimer: The information contained in this article is of a general nature only and should not be taken as financial or legal advice on any of the topics discussed. Always consult a financial adviser before making any investment decisions.

If you consolidate all of your multiple debts into one loan, you will only have one monthly repayment that you need to manage. You can do this by taking out a new loan to cover the whole debt, or by increasing an existing facility to repay the other smaller amounts. Consolidating all debt into one home loan is favourable to many home owners because of the advantages this offers. However, there are many important things to bear in mind to make debt consolidation work for you long term.

1. Use a personal loan to take better control

By consolidating your debts through a personal loan you will be getting what you need today.

You should look out for a personal loan with a competitive fixed interest rate. This way you can enjoy peace of mind as you get on top of your debts knowing exactly what you need to repay.

2. Change your time frames

If you consolidate debt using a home loan, you are basically turning your short-term loans into long-term borrowing. This will cost more in the long run, unless your repayments are higher than the minimum required. You can make this strategy work for you if you repay as much of your combined loan as quickly as you can.

3. Change your financial habits

If you have accumulated multiple debts because of bad financial habits, it will be very important to change your behaviour so that you avoid the same situation in future. This may mean spending less and budgeting better, and maybe even getting rid of credit cards. There’s no point in consolidating your loans only to end up in a worse position as a result.

You could use our quick and easy budget calculator tool, and in a matter of minutes you will be able to work out how realistic your financial goals are.

4. Check your fine print

In taking out a new home loan, are there are any fees and charges involved, or an increase to an existing facility?

Always make sure you find out what fees and charges apply when you consolidate your debt. Ask your lender if there is a suitable loan for you that has fewer fees and charges, and don’t pay for any features that you’re unlikely to use.

Sometimes lenders charge transaction fees, such as when you make a redraw or when you switch from a variable to a fixed rate. Others incur application and exit fees for refinancing or consolidating, so before you act make sure you find out what applies to your loan. If fees are charged when the loan starts, try and pay them upfront rather than adding them to your loan. This can save you a lot of money in interest over the lifetime of your loan.