Should I consolidate my debts when buying a home?

If you have multiple debts, you might be paying more and putting yourself through unnecessary hassle.

Juggling a car loan, a personal loan, credit card debts and a mortgage all at once can mean stress and higher interest charges – and some turn to debt consolidation to save money and make things a bit easier to manage.

Debt consolidation involves lumping all your debt together into your home loan, as this will have the lowest interest rate.

This means multiple repayments become one, which can save you money, time and confusion.

Since your home loan term is a lot longer than other forms of debt, your monthly repayments will be lower, which can be a lifesaver for those who struggle to pay off multiple debts.

Additionally, if you want to save even more, consider an interest-only segment on your home loan.

Usually allowed for up to 5 years, this payment option means that you are only paying the interest you owe on the loan, rather than actually digging into the mortgage itself.

Why do people do this, you ask? Well, if you plan on selling your home rather quickly (under 5 years), and you only see this apartment as a stepping stone to another purchase, then paying off the interest only, is a respectable and proper way to do it.

However, this should only be used in the appropriate circumstances - consult your lender for the particulars associated with such a loan.

Debt consolidation also offers the advantage of saving on associated fees and charges as you only need to pay one set rather than two, three or four!

One thing to be aware of when you consolidate all your debt into one is that while your repayments might be reduced, the overall interest charged might increase.

To combat this increase in interest paid, some people then pay more than the minimum repayment to ensure it gets paid off quicker.

Freeing up the extra cash to make these bigger repayments can require some self-discipline; if over spending and living beyond your means is what got you into multiple debts in the first place, then it may be time to redo your budget – and stick to it!

Ask your lender for more information before proceeding; or use the tools available at Commonwealth Bank to find out how you can manage your life budget.