If you have more than one loan, it may be beneficial to roll them into one consolidated loan. Debt consolidation (a type of refinancing) can make it easier to manage your repayments. But it may cost you more if the interest rate or fees (or both) are higher than before. You could also get deeper into debt if you get more credit, as it may tempt you to spend more.
Compare the interest rate for the new loan — as well as the fees and other costs — against your current loans. Make sure you can afford the new repayments. If the new loan will be more expensive than your current loans, it may not be worth it. Remember to check for other costs, such as:
Penalties for paying off your original loans early
Application fees, legal fees, valuation fees, and stamp duty. Some lenders charge these fees if the new loan is secured against your home or other assets
To get a lower interest rate, you might be considering turning your unsecured debts (such as credit cards or personal loans) into a single secured debt. For a secured debt, you put up an asset (such as your home or car) as security. This means that if you can't pay off the new loan, the home or car that you put up as security may be at risk. The lender can sell it to get back the money you borrowed.
Therefore, it is worthwhile considering your other options before using your home or other assets as security.
Before you pay a company to help you consolidate or refinance your debts:
Talk to us as your trusted mortgage broker. If you’re struggling to pay your mortgage, talk to your mortgage provider (lender) as soon as possible as all lenders have programs to help you in tough times. Ask to speak to their hardship team about a hardship variation. They may be able to change your loan terms, or reduce or pause your repayments for a while.
Consider switching home loans. A different home loan could save you money in interest and fees and eliminate the need to debt consolidate
Talk to your credit providers. If you have credit card debt or other loans, ask your credit provider if they can change your repayments or extend your loan. The National Debt Helpline website has information about how to negotiate payment terms.
Consider a credit card balance transfer. A balance transfer may be a good way to get on top of your debts. But it can also create more problems. See credit card balance transfers to help you choose wisely.
