Consolidating your debts into one manageable loan can be a smart way to not only get your finances in order, potentially at a cheaper rate, but to also reduce the amount of personal finance paperwork you deal with on a monthly basis. You might have personal loans, car loans, credit cards and a mortgage. Usually these debts can be consolidated against your mortgage and of course work harder under your lower mortgage rate. Debt consolidation, however, does take a degree of discipline and finance management.
Advantages of debt consolidation
- Reduced interest rates. If you are consolidating debt against a mortgage, you are using secured debt. Because you have security, your interest rate will typically be lower.
- With all loans secured against one debt, you have only one creditor. Fees should be lower across the board and less paperwork.
Disadvantages
- It can be easy to get into further debt if you don’t manage your situation carefully. If you have consolidated your debts under a mortgage, set yourself a payment level each month and make sure you stick to a budget.
- Because your debt is secured against your home, if you don’t meet your repayments you could lose your home.