[lead]We’ve all heard of “debt consolidation” but what does it actually mean?[/lead]
Ben is 32, he earns $4300.00 per month in the hand. He has a home loan balance of $350,000 repayment $2300 per month and his Property is worth $700,000. Ben currently has a car loan with a monthly repayment is $600 and a credit card, which he owes $7000 with a $250 repayment per month respectively. With home loan repayment ($2300 per month), food ($600 per month), bills ($400 per month) and Ben’s repayments on his car loan, credit card ($850 per month), Ben has realized that he is struggling to afford all of his expenses each month and is being left with very little savings at the end of each month.
A simple way to overcome this is by consolidating these debts into one easy repayment using the equity in his home loan, this has been done and he has a home loan balance of $380,000 with a monthly repayment of $2400 which has free up Ben’s cash flow leaving him with an extra $850 per month. Ben plans to use that extra cash flow to pay extra on his increased loan to help reduce his interest and pay his home loan off quicker.
Some of the types of debt you might be able to consolidate include:
- Car loans
- Personal loans
- Credit card debt
- Lines of credit
- Store cards
- Large utilities bills (e.g. electricity and phone)
- Pay day loans
- Short term loans
Remember, debt consolidation doesn’t mean that you are in debt trouble or that you are in financial hardship – it simply means organising your debt in such a way that it is affordable, and costs you less.