Like many Australians you could have several debts – probably a home loan, a personal loan, and possibly even a credit card balance. Having multiple debts means juggling lots of different repayments.
Refinancing your home loan can provide an opportunity to streamline your debt, and potentially reduce the overall interest you’re paying on multipledebts through the process of ‘debt consolidation’. It means folding several high interest debts into one lower rate debt – which could be your home loan – and this may reduce your total monthly repayments.
However, it’s important to note that debt consolidation can come with some downsides. It can turn a short term debt like a personal loan into a long term debt (your mortgage), and that means paying interest on the balance for a much longer period which could cost you more in the long run.
For debt consolidation to be truly cost effective, you need to commit to making additional repayments to pay off the enlarged loan as quickly as possible.