Debt consolidation is taking a new loan from the bank or non-bank lender at a lower interest rate or extended terms to replace your existing debts such as outstanding credit cards, hire purchases, personal loans and car loans which are at a higher interest rate.
Why consolidate your debts:
- Lower monthly payments.
- Raising your credit score.
- Having a single creditor.
- Fixed end date.
Costs of debt consolidation:
- Discharge fee.
- Establishment fee.
- Valuation fee.
- Solicitor fee.
A recent example:
- BNZ Credit Card $4,500, $419 per month.
- BNZ Personal Loan $15,000, $1,337 per month.
- Westpac Credit Card $4,000, $376 per month.
- Gem Visa Credit Card $4,500, $430 per month.
- Gem Personal Loan $23,000, $2,076 per month.
- Hire Purchase $6,000, $572 per month.
- Q Card $8,500, $322 per month.
- TOTAL $65,500, $5,532 per month.
A lot of his short term debts were on interest rates above 20%, so we significantly dropped this and increased his debt term. This solution was focused on improves his cash flow by lowering monthly payments and extending terms. The repayments for his new situation were $1,417 per month including all his short term debts and the fee. When you need a non-bank lender there is an establishment fee payable which gets rolled into your consolidated debt.
May I consolidate debt onto my mortgage?
Yes, we highly recommend because the interest rates of home loan are so much lower than the personal loan. We could complete this by refinancing or mortgage topping up. You will get a separate loan account, often using a 5-10 years term to clears your debt.