Refinancing your home loan to consolidate debt can be one of the most effective ways to ease the stress of paying multiple debts at once. It’s not uncommon to have multiple forms of debt these days (hello credit card, car loan and home loan), but managing multiple payment due dates, fees and interest charges can eat into both your time and money. By combining your existing debts into your home loan, your savings could extend past interest charges and start saving you precious time and simplify your money management.
How does refinancing your home loan to consolidate debt work?
Refinancing your home loan for debt consolidation is the process of combining all your debts into your existing home loan. This means you’d only be paying your home loan interest rate and the one repayment amount.
As an example, say you have:
Home Loan – Owing Balance of $400,000
Credit Card – Owing Balance of $2,500
AfterPay Account – Owing Balance of $1,500
Car Loan – Owing Balance of $10,000
TOTAL – $414,000 debt
Everyone of these debts would have a different interest rate, different repayment amount, repayment due date and loan term. Refinancing your home loan would mean applying for a new home loan amount of $414,000 and using that additional $14,000 of home loan funds to pay out your Credit Card, AfterPay account and Car Loan. Now, your situation would look like this:
Home Loan – Owing Balance $414,000
TOTAL – $414,000 debt
This debt consolidation into your home loan means that you now only have one debt (being your home loan). You no longer have to manage multiple debt repayments, pay different interest rates or remember different due dates. You are only paying your home loan interest rate and one repayment amount.
What kind of debt can I consolidate?
Have you maxed out your AfterPay or ZipPay accounts? Got a credit card you just can’t seem to make headway with? Do you have a personal loan for that holiday you took before COVID locked us down? Maybe you have a car loan from a dealership or bank and the money just keeps coming out every pay. All of these forms of debts can put strain on your income, all of them will have a different interest rate and, yes — all of them can be consolidated into your home loan!
How to effectively manage your debt after consolidating
Know your spending habits
With the use of a budget, track your income and expenses. If you are spending more than you are earning, you’ll need to reassess your spending habits or risk accumulating more debt.
Pros and cons of refinancing for debt consolidation
You only have to make one debt repayment, not multiple
You could save money by having only one interest rate and one set of fees
Access most current interest rates
You have more control over your debt
Top tips for refinancing for debt consolidation
- Your recent payslips
- Existing loan details
- Pay-out amounts for debts to be consolidated