Let’s get smarter about how we do debt consolidation loans.
If you’re wanting to purchase a home in the next year or two, but you have some existing debts, then you want to tidy those up as quickly as possible.
When we say tidy them up, there are two things that you want to try to do:
Firstly, you want to make sure that the repayment for those loans is as low as possible, and that allows you to get a larger mortgage. When you apply for a mortgage, you have to list all of the financial outgoings that you have, and that includes all your loan repayments. The higher they are, the less the bank will let you borrow for your mortgage. For this reason, you want to have those repayments as low as possible, because that allows you to borrow more from the bank for your mortgage.
But secondly, you want to make sure that you have the ability to pay more than the minimum repayment, so that you can pay your debts off faster.
With debt consolidation loans, the interest rate is going to be higher than a home loan, because it’s an unsecured loan. Therefore, you want to be able to pay your loan off more quickly and without penalty.
What Are The Best Debt Consolidation Strategies?
This is where so many people get things wrong.
It’s easy to select a loan that might be easy to apply for, but that does not mean that it will be the best option and often they’re not.
Unfortunately, a lot of debt consolidation loans just wrap up your existing debts, charge you some additional fees, and then spread the payment out over a period of time that seems affordable for you – they often do not achieve anything in the long run – there is no strategy.
Smarter Debt Consolidation Loans
As we’ve already mentioned, you want a debt consolidation loan that is a bit smarter than that.
Think about these two key features:
- You want a loan that has lower repayments but gives you the ability to repay more.
- You want a loan that also allows you to redraw money if need be.
Where this really benefits is you can put more of your money into paying the loan off faster, but if your circumstances require it you can then redraw some of that extra that you paid without having to apply for a new loan. Therefore, if you can get the outstanding balance paid down quicker, you will pay less interest and that’s a huge benefit.
If you plan on buying a home before this loan is paid off in full then the most important thing is to have the required repayments lower, and that means having a longer loan term. You might choose to have a loan term of 5-years or even up to 7-years but knowing that you can pay the loan off faster. If you are buying a home then you might also be able to consolidate the loan into your mortgage at some point and therefore pay this off and get even lower interest rates and the similar flexibility to what a good home loan has.
Now that’s thinking a lot smarter!
With a debt consolidation loan it’s the features that allow you to pay more off the loan that will save you the most – more than just a slightly lower interest rate. It’s not about the interest rate that you pay, but the rate that you can pay your loan off. That’s because you only pay interest on the outstanding balance.
Apply today and see whether you qualify for a smarter debt consolidation loan.
It’s 100% no obligation to check what is possible, and then once you know what’s possible you can decide how you want to proceed.
