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Do you know the risks with debt consolidation and refinancing?

If you have more than one loan, it may sound like a good idea to roll them into one consolidated loan, however, at STS Accounting Group we advise that you first chat to
one of our expert accountants, so you know the risks and ensure you will save money!

Debt consolidation (or refinancing) can make it easier to manage your repayments. But it may cost you more if the interest rate or fees (or both) are higher than before.
You could also get deeper into debt if you get more credit, as it may tempt you to spend more.

Here are some things to consider before deciding to consolidate or refinance.


Avoid companies that make unrealistic promises.
Some companies advertise that they can get you out of debt no matter how much you owe. This is unrealistic.
Don’t trust a company that:
– is not licensed
– asks you to sign blank documents
– refuses to discuss repayments
– rushes the transaction
– won’t put all loan costs and the interest rate in writing before you sign
– arranges a business loan when all you need is a basic consumer loan


Make sure you will be paying less
Compare the interest rate for the new loan — as well as the fees and other costs — against your current loans. Make sure you can afford the new repayments. If the new loan will be more expensive than your current loans, it may not be worth it.
Remember to check for other costs, such as penalties for paying off your original loans early, application fees, legal fees, valuation fees, and stamp duty. Some lenders charge these fees if the new loan is secured against your home or other assets. Beware of switching to a loan with a longer-term. The interest rate may be lower, but you could pay more in interest and fees in the long run.


Protect your home or other assets
To get a lower interest rate, you might be considering turning your unsecured debts (such as credit cards or personal loans) into a single secured debt. For secured debt, you put up an asset (such as your home or car) as security. This means that if you can’t pay off the new
loan, the home or car that you put up as security may be at risk. The lender can sell it to get back the money you borrowed. Consider all your other options before using your home or other assets as security.


If you’re considered debt consolidation or refinancing we recommend you give one of our friendly and expert accountants a call. Just one conversation can start you on the right path!

Contact STS Accounting Group today:
Torquay (03) 5261 2262
Winchelsea (03) 5267 2673




Information for this article was sourced from moneysmart.gov.au