At the Reserve Bank of Australia’s (RBA) March board meeting, it opted to raise the cash rate by 0.25 percentage points. This takes the cash rate to 3.6%, 3.5 percentage points higher than this time last year.
As interest rates have increased over the last 10 months, many homeowners have been looking for ways to save costs. One way they may have considered is debt consolidation. This can be a beneficial decision for a number of reasons but it may not be right for everyone. We explore who this might be better suited to.
Why consider debt consolidation?
Debt consolidation is where you roll multiple debts, such as personal loans, car loans and credit cards, into one account. This can help simplify repayments as it will only be one rather than multiple. It could also potentially save you money if the consolidated debt is a lower interest rate than when the debts were separate.
There are a number of ways you could consider consolidating debt. These include combining into one personal loan or adding it to your home loan.
Key considerations before consolidating debt
Consolidating debt could be beneficial for many people, however there are a number of factors that need careful consideration before choosing to do so. The main questions to ask include:
- Are there any fees for paying any of the debts off early?
- Are there any application, legal or valuation fees or changes to the stamp duty costs?
- Are you comfortable with the security? For example, if rolling unsecured personal loans or credit cards into your home loan, your home is used as security. This means should anything happen that means you can no longer meet repayments, the lender is within its rights to sell your home to recoup costs.
- Will the new debt have a longer loan term, which could mean paying more interest over time?
Can debt consolidation impact my credit score?
Credit scores can be impacted in the short term when lines of credit are applied for, particularly if multiple applications are made within a short period of time. However, if you consolidate debt and consistently make your repayments, it could potentially improve your score.
Why see a broker about consolidating debt?
As you can see, debt consolidation can be an effective way for some people to save money and make repayments simpler. However there are a number of considerations to ensure it is the right strategy for you. A broker will get to know your situation and goals and crunch the numbers for you to determine whether debt consolidation could be the right choice for you. Loan Market brokers have access to over 60 lenders to find one that suits your needs and offers a competitive rate.
