Should one consolidate debt in a time when interest rates are so low? Is it a good thing? The correct answer would be absolutely ‘yes’.
Why do so many people shy away from the option to consolidate debt? To answer that question we’ll discuss 2 options and what their good and bad points are.
Consolidate Debt with a Personal Loan.
If you try to consolidate your debt with a personal loan you will probably end up paying a large installment because personal loans go up to a maximum period of 5 years.
The interest on a personal loan is also much higher than a home loan. If you are not a home owner, then a personal loan is the only option you have if you want to consolidate debt.
Have a look at the various accounts you want to settle and compare that to the personal loans’ interest rate and decide if it would be worth while. As a last resort to improve monthly cash flow – add up what you want to consolidate and compare that to what the new personal loan installment will be and see if you will be better off at the end of the month.
Consolidate Debt with a Home Loan or Refinance Loan
If you are looking at using your home loan to consolidate debt it would be a wise option. This is because interest on a home loan (at time of writing this article) is only 10.5% and all other debts normally average to more than 20% p.a., so this shows you will save quite a bit per month.
You will immediately see a drastic improvement in your monthly cash flow after you consolidate debt, but remember, you should put at least half of what you now have extra into your bond account, otherwise you’ll be paying off those debts over 20 years.
So yes, by getting a loan to consolidate debt you could significantly improve your monthly cash flow, but you must look at the various interest rates and monthly installments before blindly going into it.
Click here for more information on how to consolidate debt.