debt management Archives

Is Debt Consolidation Right for You? A Checklist for Homeowners

12 December, 202412 December, 2024 Budgeting, Education, Finance

Struggling to keep track of multiple debt payments each month? For many Australian homeowners, juggling different debts—whether it’s credit card balances, personal loans, or mortgage repayments—can become overwhelming. Debt consolidation could be a way to simplify finances and regain control. But before diving in, it’s important to understand the ins and outs of debt consolidation, along with the options and risks involved. Here’s a practical checklist to help you assess if consolidating debt is the best solution for your financial situation. Step 1: Understand What Debt Consolidation Involves Before diving into debt consolidation, let’s clarify what it means. Debt consolidation combines multiple debts into a single loan. Instead of paying off several balances at varying interest rates, you roll everything into one payment. This often makes managing your debts easier and could even lower your monthly payments. Step 2: Evaluate Your Current Debts and Expenses Start by listing each debt, including the balance, interest rate, and monthly payment amount. Are your current debts high interest? If so, a lower-rate consolidation loan could help reduce what you pay over time. Tip – Use an online debt consolidation calculator to help compare the cost of consolidating with your current debts. Step 3: Consider Your Debt Consolidation Options When it comes to debt consolidation, homeowners have several options and choosing the right one depends on your financial needs. Here’s how a few of the common options might look in practice: Personal Loan Suppose you have multiple high-interest credit card debts. By taking out a personal loan with a lower fixed interest rate, you could pay off all your cards at once and then make just one monthly payment on the loan, potentially saving on interest and simplifying your finances. Balance Transfer Credit Card Imagine you have a $5,000 credit card balance with a high interest rate. Transferring this balance to a credit card with a 0% introductory rate for 18 months would give you a period of interest-free payments. If you pay off the balance before the promo period ends, you could avoid paying interest altogether. However, it’s essential to stick to a repayment plan to clear the debt before the higher rate resumes. Home Equity Loan If you have equity in your home, this can be an option to access funds at lower interest rates. A home equity loan provides a lump sum that can be used to consolidate debts, while a home equity line of credit (HELOC) works more like a credit line that you draw from as needed. For instance, if you have $15,000 in credit card and personal loan debt, a home equity loan could help you pay off these balances with a lower interest rate, freeing up cashflow. Keep in mind, though, that your home acts as collateral, so this option requires a commitment to regular repayments. Step 4: Check Potential Risks Debt consolidation can simplify finances, but there are risks involved. Here are some to watch out for: After reviewing your debts, consolidation options, and potential risks, take stock. Are you looking for simplicity, lower interest rates, or lower monthly payments? Can you commit to responsible spending to avoid new debt? If you’re still unsure, a mortgage broker can help you assess your options, evaluate potential savings, and choose the best approach based on your financial goals. Take control of your debt today—reach out to a mortgage broker and explore your debt consolidation options. The information provided in this article is general in nature only and does not constitute personal financial advice. 

When debt collectors call, know your rights

7 October, 20248 October, 2024 Updated on8 October, 2024 Budgeting, Education

Debt is a fact of life; some might say it’s a necessity. Rarely is a home or large-ticket item purchased without finance of some kind. Australians typically manage their financial obligations well, but rising interest rates, cost of living pressures and unexpected expenses combine to place stress on a household budget. In an increasingly cashless economy, it’s difficult to keep track of spending, and before you can say, tap-and-go, the morning latte and toastie has maxed out the credit card. Most people tighten the belt and get back on track. Unfortunately, others find themselves caught in a downward spiral that quickly gains momentum until realising they’re in over their heads. Failure to meet your financial obligations may result in you being contacted by a debt collection agency as creditors seek to recoup their losses. While this is traumatic, keep your cool and remember that you have rights. According to MoneySmart.gov.au a debt collector can only contact you: Debt collectors may: Debt collectors cannot: If you believe a debt collector, or agency they represent, has acted outside of their boundaries, you are within your rights to take action. Violent or threatening behaviour is never acceptable; immediately contact the police. Alternatively, if the collectors are intimidating or harassing you, write to them or their agency to report the behaviour and request it be stopped. If this doesn’t work, reach out to the Australian Financial Complaints Authority on 1800 931 678 for advice. Debt collectors aside, you must take action to manage your debt. No debt ever went away because it was ignored, but there are ways to dial down the pressure. Here are some steps you can take today to get started: You can also seek professional assistance from a qualified financial adviser. They’ll work with you to create a realistic strategy for managing your expenses and guide you in developing a plan to move forward and eliminate debt. Debt can be debilitating and seem overwhelming, but by understanding your rights, knowing where you stand financially and seeking professional advice and support, you can take back control of your finances and look towards a comfortable financial future. The information provided in this article is general in nature only and does not constitute personal financial advice. 

The impact of student loans when buying a home

27 August, 202427 August, 2024 Budgeting, Education, Finance

For many Australians, particularly young Australians, the dream of home ownership is often accompanied by the reality of carrying student loans, known as HECS-HELP debt. Understanding the impact of HECS debt on your ability to secure a home loan can help you plan for and navigate the home loan process. Case Study Sarah, is a 32-year-old marketing professional from Melbourne. She has a stable job with a steady income and has managed to save a decent deposit for her first home. However, like many Australians, Sarah carries a HECS debt from her university education. What is HECS-HELP debt? HECS-HELP is a loan offered by the Australian government to pay for studies at a university or approved higher education provider. Once a person earns above the compulsory repayment threshold, loan repayments are automatically deducted from their pay through the ATO. There is no interest on the loan, but the debt is annually indexed against inflation. Sarah’s Home Loan Goals Sarah’s goal is to purchase a two-bedroom apartment close to the city. She is aiming to take out a $450,000 home loan, considering her savings and the property prices in her desired area. Sarah is concerned about how her HECS debt will affect her home loan application and how she can maximise the amount she can borrow. The Application Process and the Impact of Student Loans When Sarah approached a mortgage broker to discuss her home loan options, she learned that her HECS debt, while interest-free, would still impact her borrowing capacity. Sarah’s potential lenders must consider her ability to meet all financial obligations, including her HECS repayments. This could potentially lower the loan amount Sarah qualifies for, as lenders assess her debt-to-income ratio. Strategies and Solutions Sarah’s mortgage broker advised that there are several strategies she can consider to enhance her borrowing capacity despite her student debt: Outcome By proactively managing her finances, seeking professional advice, and implementing strategies to manage her HECS debt, Sarah was able to strengthen her home loan application. She successfully secured a home loan with a competitive interest rate, allowing her to purchase an apartment within her parameters. The impact of student loans on home loan applications is a significant consideration for many young Australians. But the good news is that there are steps you can take to minimise the impact of HECS-HELP debt. Doing so enhances the chances of securing a home loan, and empowers you to make informed decisions on your financial journey. Reach out to us today and take the first step towards home ownership! The information provided in this article is general in nature only and does not constitute personal financial advice. 

Charting a course to financial recovery

27 February, 202427 February, 2024 Budgeting, Education, Finance

Australian Bureau of Statistics, (ABS) figures indicate that between 2017-2018 and 2019-2020 total average household debt rose from $190,000 to $204,000. That’s an increase of over 7% in two years! The reasons why would make for an interesting study, however a more pressing question might be what can we do about it? Combine high levels of debt with rising interest rates and a cost-of-living crisis, and it’s no surprise that Australian households are reaching out to Debt Management (DM) companies to help regain control of their finances. DM companies are private organisations that can assist by: Sometimes, DM companies repay your debts – to a specified limit – and you repay them under a single loan arrangement. Terms and payment amounts can be negotiated, offering a beacon of hope and a sense that you’re taking back control. If this sounds like the perfect solution, remember that for every pro, there’s usually a con. For example: While weighing the pros and cons of a DM service, here are a few do-it-yourself strategies for consideration. Budgeting Creating a budget is a 3-step process. The government’s Moneysmart website lists easy ways of cutting back everyday spending. Negotiating Rather than customers defaulting, most banks and utilities companies prefer to negotiate repayment terms, sometimes even offering assistance programs. The key is to reach out before it’s too late. Be upfront about your situation and willing to arrive at a mutually beneficial arrangement. Remember, nobody wins when debts are not paid. Government assistance The Australian government provides a range of financial assistance packages and interest-free loans depending on circumstances. These include crisis payments for unexpected situations, and income support payments for cost of living expenses. Of course there are conditions, but further information, including application criteria, is available from the MyGov website. Financial counselling Financial counsellors help you understand your financial position and assist you to navigate your way out of difficulty. Some local communities offer free, or low-cost, financial literacy programs, aimed at providing education about money and debt reduction. Everyone’s financial position is unique. There’s no one-size-fits-all, so it’s important that your action plan is specific to your needs and that you’re 100% comfortable with any decisions you make. If you’re uncertain, seek the assistance of a qualified financial planner. What’s crucial is that you do something; being proactive is empowering and sets you on the path to financial recovery. The information provided in this article is general in nature only and does not constitute personal financial advice. 

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