Consolidation Advise
Consolidation is much more than just a process of refinancing all debts into one loan. The objective is to improve your financial position, and without an effective plan or the right financial systems, you are at risk of a negative financial impact. (see more under our consolidation consumer alerts).
The easiest way to detail your consolidation options is through an example. A consolidation analysis needs to examine the following three elements.
- Repayment amount
- Total cost of finance
- Term of finance
Please note in this example we refer to a home loan rate of 8.25%. The cash rate in Australia has averaged approximately 6.52% over the past 18 years, and an 8.25% interest rate is a more calculated comparison over the term of a home loan.
Example current situation
Amount owing, interest rates, repayments.
Home loan: $243,678 - 8.25% - $1875 per month
Credit card: $6,000 - 8.0% - $120 per month
Car loan: $13,500 - 9.9% - $341.75 per month
Store card: $2,800 - 18.0% - $60 per month
Current cost and term of finance
Home loan total cost $612,852 with remaining term 27 years and 9 months.
Credit card total cost $11,173 with remaining term 7 years and 10 months.
Car loan total cost $16,401 with remaining term 4 years and 0 months.
Store card total cost $4,850 with remaining term 6 years and 9 months.
Summary of current financial position is.
Total monthly repayments: $2,396.75
Total cost of finance: $645,276
Maximum term of finance: 27 years, 9 months
In this example we refinance with the same lender for a cost of $350, which is now included in the loan. Lets review the following consolidation options…