What is debt consolidation?

Debt consolidation is the process of combining multiple debts, such as your home loan, car loan, and credit card balances, into one single loan. This means instead of managing separate repayments for each debt, you’ll only need to make one combined monthly or fortnightly payment.​​

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By consolidating your debts with your home loan, you can take advantage of its typically lower interest rate. Since credit card interest rates often exceed 10%, this could help you save money and reduce the stress of keeping track of multiple payments. It also allows you to benefit from a longer repayment term and lower interest rates.​

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However, consolidating debt doesn’t mean you’ll have to repay those debts over the entire remaining term of your home loan. You can choose a specific timeframe to repay your consolidated debt within your home loan. For example, if you have 15 years left on your home loan, you might opt to repay the consolidated debt within 3 years. This way, you can minimize the amount of interest paid over time.

What types of debts can I consolidate?

There are three kinds of unsecured debts that you can consolidate with your home loan:

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• Car loans

• Personal loans

• Credit cards

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Each of these credit products typically comes with a higher interest rate and a shorter repayment period compared to most home loans.​

How can I consolidate my debt?

In order to consolidate your debt, you need to refinance your home loan. To be eligible for a new debt consolidation loan, you'll need to show that you're a reliable borrower who can make repayments on time. You'll need to demonstrate the following:

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• A healthy credit rating

• Proof of regular, on-time home loan repayments in recent months

• Proof that you’ve paid your loans and credit card on time in recent months

• A verified stable income

• Adequate home equity

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If you don't meet the above criteria, you may be able to consolidate with a specialist lender offering non-conforming loan options. However, be aware that these lenders may charge higher interest rates and loan establishment fees.​

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Avenstone can guide you through the process of consolidating your debt and refinancing. Get in touch with Avenstone today to find out what your options are.

Pros of debt consolidation

• Single repayment: Having a single monthly or fortnightly repayment helps you better manage your finances.

• Reduced risk of missed repayments: You are less likely to miss repayments if you only need to make one per month or fortnight.

• Lower interest rates: Home loan interest rates are lower than those for most other credit products (e.g. credit cards, personal loans).

• Potential savings on interest: You could save on interest if your new debt consolidation home loan is well-structured.

• Improved cash flow: You benefit from improved cash flow, allowing you to have more money to spend on what you want and need.​