When you’re managing a home loan, credit cards, personal loans or a car loan, keeping up with several repayments each month can put pressure on your budget. If you’re self-employed, outstanding ATO debt may add to that pressure.
Debt consolidation allows you to combine eligible debts into a single loan. Depending on your circumstances, this may help reduce your monthly repayments and make your finances easier to manage.
MA Money offers flexible refinancing options for eligible borrowers, including those with credit impairments or outstanding ATO debt.
Here’s how debt consolidation works, how it could help you manage your existing debts, and what to consider before refinancing.
In this article:
- What is debt consolidation? Understand how combining multiple debts into one loan works.
- Reducing monthly repayments: Learn how refinancing could help ease pressure on your budget.
- Consolidating ATO debt: Explore how outstanding tax debt may be included in a home loan refinance.
- Previous missed repayments or defaults: Find out what options may be available if you’ve experienced financial difficulties.
- A real debt consolidation example: See how a borrower reduced their combined monthly repayments by $1,500.
- What to consider before consolidating debt: Understand the potential costs and implications before refinancing.
What is debt consolidation?
Debt consolidation involves combining multiple existing debts into one new loan.
For example, you might have a mortgage, credit card balances, a personal loan and a car loan, each with different interest rates, repayment amounts, and due dates.
By refinancing your home loan, you may be able to use the equity in your property to pay off some or all of these debts, bringing them together into a single loan with one regular repayment.
This can simplify your monthly finances by reducing the number of repayments you need to manage. Depending on your circumstances and the new loan structure, it may also reduce your monthly repayments.
Can debt consolidation reduce your monthly repayments?
Yes, debt consolidation could reduce your combined monthly repayments, particularly when shorter-term debts, such as credit cards, personal loans and car loans, are refinanced over a longer home loan term.
When eligible debts are incorporated into a home loan, spreading repayments over a longer period may lower the amount you need to pay each month and leave more room in your monthly budget for household expenses and other financial commitments.
There are a few important things to weigh up before making a decision. A longer loan term can increase the total interest you pay, even if your monthly repayments decrease. Refinancing may also involve fees, and interest rates on the new loan will affect the overall cost.
If you consolidate unsecured debts into your mortgage, those debts become secured against your property. It’s important to understand this change before proceeding.
A mortgage broker can help you compare your existing repayments and borrowing costs with the proposed loan, so you can see how debt consolidation may affect your finances both now and over time.
Can you consolidate ATO debt into your home loan?
Yes. MA Money can consider outstanding ATO debt as part of a home loan refinance for eligible borrowers, subject to lending criteria.
ATO debt can build up for several reasons. Self-employed people and business owners, for example, may face unexpected expenses, periods of lower income or difficulty keeping up with tax payments while managing other business costs.
If you have enough equity in your property and meet the relevant lending requirements, you may be able to refinance your existing mortgage for a higher loan amount. The additional funds can be used to repay your outstanding ATO debt at settlement, bringing it into your new home loan. You may also be able to consolidate other eligible debts as part of the same refinance.
This could simplify your repayments and help make your monthly cash flow more manageable.
Before refinancing, consider the total cost of the new loan and whether other arrangements, including an ATO payment plan, may be appropriate for your situation. A longer mortgage term can spread the cost of your tax debt over many years, potentially increasing the interest you pay.
Can you consolidate debt if you’ve had missed repayments or defaults?
Previous missed repayments or defaults do not automatically rule out a debt consolidation loan. Your eligibility will depend on your current financial circumstances and the lender’s assessment.
Financial difficulties can arise from a period of reduced income, an unexpected expense, illness or a major change in personal circumstances. Even when your situation improves, previous repayment issues may remain on your credit history.
MA Money can consider eligible borrowers with previous mortgage arrears, defaults and other credit impairments.
Rather than relying solely on your credit score, MA Money considers the circumstances behind your previous financial difficulties and your current position. This includes your income, recent repayment history, available property equity and ability to afford the proposed loan.
If your circumstances have changed since the original financial difficulties, a mortgage broker can help you explore your refinancing options and understand what information may be needed to support your application.
Real example: How debt consolidation reduced monthly repayments by $1,500
A borrower in Victoria experienced financial pressure following the death of a family member overseas. After helping with medical expenses, they fell behind on their mortgage repayments and defaulted on a personal loan.
The borrower wanted to refinance their existing home loan, consolidate their debts and access additional funds to help manage their finances.
MA Money provided a $495,000 Specialist Full Doc loan at 75% LVR, allowing the borrower to refinance and consolidate their debts.
Following the refinance, their combined monthly repayments decreased by approximately $1,500, easing pressure on their household budget.
This example shows how debt consolidation may help borrowers manage their repayments following a period of financial difficulty.
Every borrower’s circumstances are different. Any reduction in monthly repayments through debt consolidation will depend on the debts involved, the new loan terms and the applicable lending criteria.
What should you consider before consolidating your debts?
Before refinancing, take a close look at your existing debts and what you want the new loan to achieve.
Consider the following:
- Your monthly repayments: Compare your current combined repayments with what you’d pay under the new loan.
- The total interest cost: Check how the new interest rate and loan term could affect the total amount you pay over time.
- Fees and charges: Account for any costs associated with refinancing and paying out existing loans.
- Your property: Understand the implications of securing previously unsecured debts against your home, which could be at risk if you’re unable to meet repayments.
- Your ongoing budget: Consider how you’ll manage future expenses and avoid building up additional debt after consolidation.
While lower monthly repayments may help with cash flow, it’s important to weigh up the benefits against the full costs of the new arrangement. Your mortgage broker can help you work through these considerations and assess whether the proposed structure suits your circumstances.
Could debt consolidation be right for you?
If you’re managing multiple debts, outstanding ATO debts or repayments that have become difficult to keep up with, refinancing may be an option worth exploring.
MA Money offers debt consolidation options for eligible borrowers, including those with credit impairments or more complex financial circumstances.
Speak with a mortgage broker to discuss your situation and find out whether consolidating your debts could help make your repayments more manageable.
This article provides general information only and does not constitute financial, tax or legal advice. It does not take into account your personal objectives, financial situation or needs. You should seek independent advice from a licensed professional before making any financial decisions. Applications for credit are subject to eligibility and lending criteria. Fees, charges and T&Cs apply and are available on request. MA Money Financial Services Pty Ltd ACN 639 174 315 Australian Credit Licence 522267.
