What is debt consolidation, and how does it affect mortgage?

It's important to understand that debt consolidation doesn't reduce the amount of debt you have. It’s just about moving all of it from multiple places into one place which may have more favourable terms.  So if you choose to consolidate your debt when it’s not going to add much value to your life, in terms of convenience and interest charged, the entire process might just be an unnecessary hassle.  

This is why it helps to know times when it might be best to consider consolidating your debts. 

• You’ve got a considerable amount to repay: If you have a loan that you know you can comfortably repay within a year or less, debt consolidation isn't worth the cost or effort. However, suppose you’re struggling to cover the minimum repayments across all your debts each month. In that case, it may be time to consider debt consolidation.
  
  
• A good credit score: If you have a higher credit score, chances are you can qualify for a lower interest rate. This is when it makes sense to apply for debt consolidation, as it can help you save some money over the life of your loan.
  
  
• Sufficient cash flow: If you know you have the income to cover a possible increase in one repayment after removing multiple others, then you should consider consolidating your debts. However, if your financial situation is so dire that you don’t think you could even cover a single repayment. In that case, you need to seek professional debt assistance to get your finances in order.

It depends on your financial situation. If you’re someone with multiple loans and find it challenging to keep track of what bills are due and when. In that case, consolidating your debts into one loan can help. You could do this by taking out a debt consolidation personal loan, or consolidating the debt into your mortgage. The latter being when debt consolidation will impact your mortgage most.

You may be asking yourself,"should I consolidate my debt with my mortgage?" Unfortunately, there’s no one answer to that question, as the answer will depend on your specific financial situation and budget. Some people refinance their home loan to consolidate their debt because it can provide lower interest rates than some other forms of credit (such as your credit card). However, it also means increasing your loan amount and your mortgage repayments in turn. 

You also need to consider that although the interest rate you’re charged is lower, you could be paying off the debt for longer, such as when you roll in short term debts, like your credit card debt, into your home loan. This could see you paying more interest in the long run. 

The other options available to you include taking out a debt consolidation personal loan or using a balance transfer credit card that provides you with a low-interest (preferably zero per cent interest) period to pay off your existing debts. However, you need to understand the pros and cons of each of these options to select one that is best suited for your circumstances. You may want to speak to a financial advisor or contact the National Debt Helpline for assistance.

Getting expert advice can help you have a clearer picture of your options and will help you decide whether loan consolidation is beneficial or a liability.