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Debt Consolidation

Keep it simple.
Consolidate your debts into one easy to manage repayment.

Staying on top of every multiple debts and repayment at the same time can be tricky business. Debt consolidation lets you roll all of your existing debts into a one single home loan repayment.

The objective is to reduce the number of individual payments you make and reduce the interest rate you are paying on your higher interest rate debts (eg. personal loans, credit cards, etc.).


This maybe something you consider if you are:

  • Struggling to manage several debts, losing track of which repayment is due and when.
  • Falling into a credit trap, using all of your spare income to just pay the interest and not having enough left over to pay down your debt balances.
  • Paying a very high interest rate on your debts, such as credit card, cash advance or store credit purchases.

If any of the above sound a bit too familiar, several strategies will enable you to bundle your debts into one easy package. These include:

  • Moving debts to a credit facility with lower interest rates or less fees, such as a personal loan or home loan.
  • Extending the term of existing loans (e.g. taking a mortgage debt back out to the 30-year loan term).
  • Changing the repayment terms on an existing loan to interest only, or
  • Combining the above strategies.

If you implement a debt consolidation strategy, it’s important to understand that it doesn’t reduce your debts, it just makes your repayments more manageable. A debt consolidation strategy should be implemented in combination with a change to your spending behaviour, so you can work to reduce your overall debt level over time. This should include creating a budget to ensure the debt consolidation measures work effectively and using a budgeting tool such as the Gain Financial Budget Calculator.

  • No need to juggle your debts. A single loan repayment is easier and quicker to manage than attempting to keep track of multiple debts repayments simultaneously.
  • Less interest and fees. You can reduce the amount of interest you pay on high-interest facilities, whilst saving money on charges for multiple credit facilities. This may make it easier to pay back your debts.
  • Potential cash savings: This is potentially the biggest benefit of debt consolidation. By consolidating your debt into a loan charging a lower interest rate, you have the potential to save interest on monthly repayments and reduce your overall interest.
  • Lower repayments: Reducing the interest rate and spreading out repayments over time could potentially reduce the monthly repayment amount due.
  • Stress relief: Specialist lenders are available that may lend to you if you have missed repayments on your current debts, or if you have a poor credit history.

However, before you consolidate any debts, take note of the below considerations.

  • Higher long term costs. Long-term interest costs could be higher if you extend the loan term when consolidating debt. While it may reduce the size of the repayments in the short term, the overall amount repaid is far greater – particularly if you are consolidating your debts into a home loan which may have a 30-year term.

Let’s say you have a $30,000 personal loan over a five-year term at 15% p.a. This will cost $12,822 in interest.

If you add this $30,000 debt to your mortgage balance, the same $30,000 at 5% over 30 years will generate $27,977 in interest.

  • Greater temptation to spend. Make sure to close your cleared credit facilities and proceed with caution, otherwise your financial situation could actually worsen. For instance, if you roll your credit card balance into your home loan, you may be tempted to keep using your credit card, racking up an even greater bill.
  • All of your eggs are in one basket. With all of your debts consolidated into your mortgage, you have a lot at risk if interest rates increase. That’s why you should put all available cash towards extra repayments to pay off the refinanced debt as soon as possible, or set up a savings account so that you have a safety net to fall back on.
  • Home equity is used up. You may use up the home equity built through extra repayments or increases in property value. This means your profit will be reduced when you sell. Furthermore, debt consolidation may increase your loan-to-value ratio (LVR) to above 80%. In this case, you will need to pay Lenders Mortgages Insurance (LMI). This can be very expensive, offsetting the savings you’ve pocketed from consolidating your debt.

Don’t let the above points put you off just yet. Debt consolidation is a smart choice for many borrowers, depending on personal and financial circumstances. To learn whether you should consolidate your debts, get in touch with our friendly team for expert advice and guidance.