Consolidating debt: The benefits of refinancing

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Consolidating debts can be a good option if you want to get on top of your existing debts and make your monthly repayments a lot more manageable.

It is a type of home loan refinancing that draws in debts, like credit cards, phone bills, personal loans and car loans into one simple loan account. As well as streamlining your payments, debt consolidation could also save you money in the long run and you may be able to get a lower interest rate on your loan. If you do find a lower interest rate than you currently have on your other debts, you might be able to use the savings to pay off your loan balance faster. 

One debt, one regular repayment

1. One debt, one regular repayment

By consolidating your debts, you have the advantage of just one regular repayment – making it easier to budget and manage your finances. Having one loan reduces the amount of time spent keeping tabs on multiple loan accounts and managing repayments.

Depending on your personal circumstances, you might also think about switching to fortnightly repayments instead of monthly payments. This could help you to pay down your loan sooner and potentially save thousands of dollars in interest over the term of your loan.

One convenient interest rate

2. One convenient interest rate

When you look at the high interest rates on personal loans and credit cards, you can already see why consolidating your debts through refinancing may be an attractive option.

Refinancing allows you to roll all your personal debts and liabilities into one loan account – subject to one interest rate, making your repayments a lot more manageable. While the interest rate is often slightly higher than a standard variable interest home loan rate, the collective difference is may be more beneficial.

Less fees and charges

3. Less fees and charges

If you look closely at your credit card agreements, you’ll probably find that you’re being charged pretty heavy annual fees. If you decide to refinance and consolidate your debts, you’ll have only one set of administrative fees, making it much easier to know where your money is going.
Improved cash flow

4. Improved cash flow

When you consolidate your debts you can free up monthly cash flow, because you have fewer bills to pay. This can be beneficial for you if you have trouble with cash flow each month. 

Remember that if you switch to a longer loan term that you could end up paying more in interest and fees in the long run. So, before you switch, do your research to make sure the benefits of refinancing outweigh the costs. 

 

When can a debt consolidation loan be beneficial? 

A debt consolidation loan is when you take out a single loan to pay off multiple smaller debts and bills. It can be helpful for borrowers who are looking to manage multiple debts by helping them simplify their finances and save money on monthly repayments. 

How do you know if a debt consolidation loan is right for you? Here are some considerations to work through: 

1. The new loan payments could streamline your budget

A debt consolidation loan can lower monthly repayments and could help you save money. Consolidation loans may have a lower interest rate than balances owed on credit cards and other debts, so you may be able to secure lower monthly payments while still paying off your debts. This could be especially useful if you’re struggling to keep up with high monthly payments. 

2. Your debts have become overwhelming and are affecting your personal life

The stress of being is debt can be a serious emotional and financial burden which can affect your personal wellbeing. If you’re feeling overwhelmed then a debt consolidation could help you manage your financial situation by helping to free up cash for short-term needs like rent, groceries, and basic necessities, reducing the financial strain and potentially reduce the stress you’re feeling. 

3. To avoid legal action from creditors

If creditors start contacting you over missed payments, it could be an opportunity to consider consolidating your debts to help you manage your finances more efficiently. 

   

We're here to help

At Pepper Money there's no limit on the number of debts that can be consolidated into your home loan. Loan applications are subject to Pepper’s normal credit assessment and loan suitability criteria. Speak to one of our Lending Specialists on 137 377 about how you can potentially consolidate your debts with a Pepper home loan today.

Alternatively, we also offer unsecured Personal Loans for debt consolidation purposes up to $50,000.

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Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

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