The basic Debt consolidation concept is very simple. It's the follow through that people have trouble with.
Debt consolidation entails taking out one loan to pay off many others. In other words, rolling debts owed to different creditors / lenders / financiers into a single debt with a single creditor. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralisation of the loan allows a lower interest rate than without it, because by collateralising, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is often lower.
Debt consolidation can also be useful to manage other debts such as credit cards, loans, stores cards, interest free loans and other debts as these can be confusing, time consuming and expensive. You should ask yourself:
- Do you have a range of debts?
- Are you struggling with repayments?
- Do you have loans on high interest rates?
Many people in debt overextend themselves, live without money for emergencies, and use debt to fund a lifestyle they can’t afford.
Debt consolidation just masks the effects of these problems. It doesn't actually solve them. You must fix the habits that led you to debt in the first place. Otherwise, you can easily find yourself back in the same situation.
How Financial Advisers Australia (FAA) sees Debt Consolidation:
FAA can help you manage your debt in most circumstances. We offer it as a stand alone product or it is offered as part of the Excelsior Program. If you currently have a motor vehicle loan, credit card, store card or other loan facilities they can be rolled over into the Financial Advisers Australia Excelsior Program. This enables you to have only one loan (which can assist budgeting) and, more than likely, there could be an interest saving as well.
While some financial institutions will consolidate debts, it can be a disadvantage. For example, typically the financial institution will consolidate the other debts by increasing the home loan repayments and the size of the loan itself. By consolidating the smaller, short term debts, which are now repaid over the term of the home loan, the amount of interest paid increases significantly.
How can Financial Advisers Australia (FAA) help you?
By comparison, the Financial Advisers Australia Excelsior Program is structured in such a way that you are able to "capture" the savings with the advantage of paying off the loan in a shorter period.
In this way, we achieve two major benefits: the ability to consolidate debts into one payment for easy management and secondly, to avoid the higher interest rates associated with credit cards and personal loans.
If you are consering consolidating your debts or want to know how you could manage your money better please contact us for a free no obligation appointment.
Financial Advisers Australia - Australian Credit Licence Number 388789
Prepared by John Hehir Financial Advisers Australia (FAA)
