Debt consolidation is when you payoff your existing debts such as credit cards, personals and car loans with a new debt. This is usually done by either;
- Applying for a top up with your existing lender
- Refinance to a new lender with an additional cash out
Debt consolidation can help you with;
- Lower interest rate. Loans that are secured by a property generally attracts a lower interest when comparing to unsecured debts like credit cards.
- One easy payment. Once your loan settles, you will only need to focus on making one easy loan repayment instead of making multiple payments on your credit card, personal loan and car loan.
- Lower your monthly repayment. Your monthly repayment will depend on how long you wish to pay off your loan. With a home loan, you can stretch your term loan to 30 years.
- Reduced fees. Having multiple debts like credit cards and personal loan comes with accounting keeping fees. Consolidating your debts together eliminates the multiple fees and missed payments.
There are also drawbacks by consolidating your debt
- By consolidating your home loan, you may extend the amount of years it takes to pay off off your loan. This is because the longer it takes for you to pay off your loan, the more interest you pay.
- The potential to fall deeper into debt. By consolidating your debts, it may give you a false perception that you have room for more debt. With lack of discipline, you may run up your debt even more in the future.