Consolidate your debts for a stress-free, Happy and Prosperous New Year!

Yes, at Christmas we spend, and spend some more – presents, friends, treats, eating out, Christmas goodies and maybe holidays. It can be very stressful attempting to juggle everything we want to do on a tight budget. Worse, if you already have debts that are difficult to stay on top of.
If you’re concerned about how managing your debt repayments in 2016, then Top Ten Home Loans can help. Debt consolidation is one of the services we offer. We look at strategies to help you re-arrange your finances so that your debt repayments become more manageable and minimise stress, hassle and worry.

Stuck in a credit card trap?
Credit balances have a horrible way of building up over time. The greater your balance the more interest you pay. This is where the stress starts.

It can easily get to a point where reasonable repayments are suddenly just enough to make the interest repayments but don’t help pay down the balance. Credit card interest can be as high as 20% per annum, more in some cases, and meeting these interest payment obligations can cut deeply into your monthly income – which drives a vicious circle causing us to use our credit cards again and again and run up even more debt.

If you have personal loans, car loans or have used store credit as well as your credit cards, then things can really start to become difficult. We call this kind of debt ‘bad’ because it is expensive and does nothing to help you build wealth for your future – as opposed to a home loan which is a ‘good’ form of debt because it helps you build wealth and equity over time.

How to break the vicious cycle?
Once you are already paying a large proportion of your income to service your credit card interest, it can be difficult to break the cycle. The answer is to consolidate or put all your debts into one, giving you a single repayment that carries a much lower interest rate than your existing credit cards and other forms of ‘bad’ debt.

By consolidating debt and organising a new way to finance it, you can spread your repayments over time and that also helps to reduce the amount of money used from your monthly pay packet. This will mean that you can use your income to pay off your debt and support your lifestyle instead of spending it on huge interest repayments. You may even find yourself in a position to save some money!

Two ways we can help you consolidate your debt
The idea of debt consolidation is to take out a new, low-interest loan and use it to pay off all of your old high interest debts – like credit cards, store credit and expensive car loans. There are basically two options for this kind of debt consolidation:
1 Refinance your home loan and use some of the equity to pay off your debts.
2 Take out a personal loan with a lower interest rate to pay off your debts.
Home loan interest rates are currently the lowest interest rates available in Australia. Refinancing your home loan to consolidate your debts means taking out some of your equity and this will increase your home loan repayments. But since they are spread out over a long period of time, and home loan interest rates are much lower than credit card interest rates, this should work to lower your overall monthly repayments considerably and help you to get ahead.

The other alternative is to take out a personal loan to consolidate your debts. Personal loan interest rates are higher than the average home loan, but are generally less than the rates paid on credit cards.

As well as lowering the amount of interest you have to pay, a personal loan will allow you to choose your loan term to spread your repayments out and make them more manageable. This kind of debt consolidation gives you the added advantage of seeing your actual debt being eliminated – at the end of the loan term your debt will be completely paid off and you’ll be debt free! But remember this is a strategy to reduce your debt and get back on track. It’s important that a disciplined approach be maintained to ensure that the extra income freed up is used effectively.

Call us – we’ll be pleased to help!
If you want help to consolidate your debts, please don’t hesitate to call us. Our objective is to find a way to make your monthly repayments more reasonable, reduce the stress and free up more of your income to help you live comfortably and worry-free.

About Paul Brazier