With current figures showing that Australia’s borrowing level is at an all-time high, now might be the time to consider consolidating your debts.
Just five years ago our average debt per person figure was half what it is today, an astonishing leap. At the moment we currently owe $50,000 each as an average across the population, and many of us would be in a much better position financially if we were to bring all of our debts together into one manageable loan.
Having a single loan to concentrate on makes it a lot easier to bring your debt levels down. Not only will you be paying less interest, but you will also be able to monitor your progress much more effectively. If you create a personal budget for yourself by stating all of the incoming funds that you have and then subtract your outgoings, you will be able to see just how much you can afford to pay each month. Then, with the help of a loan calculator, you will better equipped to work out whether or not you are in the position of being able to pay a little more off each month.
So, let’s take a look at some of the ways that you can consolidate your existing loans into a more manageable debt reduction plan:
- Home equity – If you are lucky enough to have equity in your home, then your best course of action may be to redraw against your home loan. This method is often the most attractive for many as it will not only bring all of your debts together, making them more manageable, but will also reduce the overall interest payments by the highest percentage. This is because most home loans interest rates are generally far lower than that of other credit agreements. Certainly worth considering if you are in a position to do so.
- Consolidation loan – An alternative to the home loan option is to gather all of your debts together into one debt consolidation loan. Make a calculation of exactly what you owe, how much you are paying each month and the average interest rate of all of your loans. These figures will help you when you come to choose which loan is best suited to your consolidation needs. Choose wisely and you could save yourself a tidy sum which can, in turn, be used to pay off more each month to further lower your debt.
- Balance transfers – If your debt amount is low enough, and you can get a 0% interest credit card, then a balance transfer can be an attractive option. However, be aware that this will only be an introductory offer. Be sure to make a note of the date that the interest rate reverts back to its normal level.
It is always worth remembering that the benefits of overpaying can be huge. Making regular additional payments every month can dramatically reduce the length of the loan, and get you on an even keel quicker than you may have previously thought.
A professional post from Active Finance