Aaron Whybrow walks through debt consolidation: start with a clear goal, not consolidation itself. Personal loans run 5-7 years, home loans 30 years, so don't move short-term debt to a long-term mortgage without reason. Close accounts after refinancing, check what your lender will accept, and keep life and income protection insurance in place.
Hey, it's Aaron. Just wanted to go through a quick hack on debt consolidation. So following on from my little rant, debt consolidation, you should have a purpose and a goal of what you're trying to achieve versus just doing a debt consolidation. The reason why is that typically your car loan, personal loan has a lower term than a home loan. So personal loans, anywhere between five and seven years. Car loans, same thing, anywhere between five and seven years. So it's a shorter period of time to repay that back and then the loan has ended. With a home loan, on the other hand, it can range up to 30 years in term length. There are some variations on that, but the term length is usually 30 years. So just imagine for a second what your car would be worth at the end of 30 years. Not much. Would you want to upgrade that car in that time? And a few other things. The other thing is with personal loans, and if you've used it for a holiday or you've used it for renovations on the house and different things like that, has a different reason why you would want to debt consolidate. I don't know anyone that if they've had to borrow some money for a holiday, would want to pay it back over 30 years. Because in 30 years it's not necessarily the case that you don't want to ever go on another holiday. And paying for the first holiday, then the second holiday and then the third holiday is probably not the most smartest move. So a couple of things. When we do have a reason to debt consolidate, for example, we're going to release some money to purchase a property or some real estate to invest in, debt consolidation can help with the calculators. So if we have a mix of money coming into the household, self employed income, employee, contractor, commission, any type of income that comes in, we can use that money. If in the case as an example, a homeowner credit card, a personal loan or store card are being used, but won't allow us to get the equity that we need to release from the house to be able to use that to buy the property, or it doesn't allow us to use our cash that we've diligently saved up to be able to put the deposit down on the next house we're buying because the calculator doesn't work. The tightening, lending, serviceability, things like that needs us to debt consolidate. So therefore the end result can be that we have one loan with all the other debt spread over 30 years, which allows the calculator to move better and for us to achieve our next step. Whichever the goal is, obviously debt consolidation, let's have a goal, let's just not do it for the sake of doing it. Purchasing a property, investing in a business, managing payments because something's getting out of control. The earlier the better. The traps with any debt consolidation. Depending on which banks you go to, the ideal situation for debt consolidation is going to be, number one, have your debts paid up to date. Now, it's reasonable to say that life happens and if you've missed a credit card payment by day, once, maybe in the last three months, that's not too much of an issue. But ideally we want it all paid up. So clean statements, no late fees, no overdue fees, and no what we call default interest. Not that there's a problem with your credit, but there's a default interest charge on the statement. Especially on a home loan. We pay say 4% for the home loan, maybe a bit less days and if you miss your repayment, you probably are going to be paying 7%. So default interest does have a negative effect when we are trying to refinance or debt consolidate. Sometimes when we get to the end of the debt consolidation, some banks will take control and pay out your debts. Most likely a home loan. But other debts like credit cards, personal loans, car loans, the money may be deposited into your account for you as the applicant to pay those out. Now the big careful with this one is that you've applied for the loan to be able to pay out the debt. So having paid out letters after you've got the money and after you've been able to pay out the credit cards and things, you must close them down. It's very dangerous to have those open and can have a negative effect on your issues going forward. It would create issues going forward. So having debts all paid out, even if you have to action them, let's get that repayment letter into your hands and into my hands and go from there. Number three, careful about some types of debts you want to debt consolidate. In this example above, we've only mentioned the normal current common things. There are other debts that you can debt consolidate as well as, but it really depends on the lender. So if you're self employed and there's some tax expenses coming up that you want to deconsolidate in, there's only a couple of different lend. There's some. Not every lender will do that. Some lenders will do that. If you have unfortunately had some overdue or late payments on different debts, there are some lenders that will accommodate that as well. Unfortunately, they will accommodate it at a higher interest rate or other risk management things that they will put in place like fees, charges and interest rate. Other things to think about recently released a video on debts outside the primary relationship that can come into how the serviceability works when we are trying to do debt consolidation servicing the loan. Soon I'll release a video on how that can help. Sometimes it's not necessary to refinance finance everything immediately. Maybe just go after the goal that you got and then understanding not just the transaction we're going to go into, but this is why we should have a goal. It's not uncommon to find that you just want to debt consolidate for the now. I and my team like to look at what your plans are in the future and put some steps in place to be able to accommodate what what is going to happen in your life and your lending life or your wealth creation life to go forward. And in any of this it's always, always paramount to have some family protection in place as well with life insurance, income protection insurance because you never know what's going to happen around the corner and most of us may say it won't happen to me, but it does and seeing how it can put people back and push a whole range of this plan of why we've debt consolidated out to wazoo. Anyway, little bit of a hack on debt consolidation, why we should do it and a couple of traps to avoid when we go forward or talking about it. Alright, until next time.
