Debt Consolidation
Large numbers of Australians have debts such as credit cards, car loans, personal loans, and home mortgages. Debt levels are rising every year, especially high interest credit card debt. If you are having trouble paying all these bills then you may want to consider consolidating your debts into one low interest rate loan. This will reduce the amount you have to repay each month as well as making your finances easier to manage.
Depending on your financial situation, you can choose from a number of lower cost loans when you consolidate your debts. You could get a personal loan, a line of credit or an interest free credit card which may be interest free for a set period such as six months. The latter is a good option if you are sure you can pay off the debt during that period and you are sure you won’t use the card for further transactions.
If you have a mortgage on your home then you may be able to get a line of credit. For this you need to have a certain amount of equity in your home, this varies from bank to bank, but is a good idea as this type of loan has a relatively low interest rate compared to other forms of credit.
A personal loan is a good idea if you want to consolidate your credit card debt into one loan. This type of loan is usually fairly easy to get and the lower interest rate will make it easier to make repayments. The important thing to remember if you pay off your credit cards with a new loan is not to then go and use your credit cards again. This will get you into financial difficulties for sure. The best thing to do is close your credit card accounts, perhaps keeping one for an emergency. Don’t keep this card in your wallet but leave it in your house where you won’t be tempted to use it.
You can extend your mortgage to pay of your short term debts but this is not necessarily a good option. You may find it easier to make your payments each month because the interest rate is lower but don’t forget you will now be paying for those credit card purchases over the life time of your mortgage which may be up to 25 or 30 years? Do you really want to be paying for your big screen tv, digital camera or the latest fashions over 30 years. Although the interest will be lower in the short term you should consider how much you will be paying for these items in the long term.
I think it is generally best to get a short term low interest loan to pay off short term high interest debt. This way you will be debt free in a relatively short period and then you can save that extra cash for investments for your future. If you are not sure what to do then consult a financial advisor or discuss your options with your bank.
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