Consolidating or refinancing debt may seem like a simple way out of overwhelming debt, and for some people it can be a great help. However, there are several things you need to consider before jumping into either of these options.
What are they?
Refinancing involves cancelling your current loan agreement, and entering into a new loan agreement with your current lender or another lender. Debt consolidation is the process of taking out a new loan to pay off all your existing loans, effectively leaving you with just a single, larger loan to repay.
What are the benefits?
Most people usually refinance or consolidate debt in an attempt to make their loan repayments more affordable in the short term. It is also easier to manage a single payment to one lender, than keep track of several payments with different conditions and payment dates. Consolidating loans can also often reduce overall interest costs.
What are the disadvantages?
There are usually a number of fees that will need to be paid as you refinance or consolidate your debt. Exit fees from existing loans and set up fees for new ones can add up. You will also need to be careful that the interest rate on your new loan is actually lower than what you are currently paying on the debts you are consolidating. If you end up paying higher interest, you will be worse off.
Overall, consolidating or refinancing loans can work for some people if they are able to meet their repayments and reduce fees and interest. For others, it is just a short-term fix that can put them even deeper into debt.
If you need advice on refinancing your debts, call your current lender first. If your refinance application is refused, then give us a call on 1800 462 767 and we can discuss your alternatives.