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A Real-Life Example of Debt Consolidation
Is Debt Consolidation Worthwhile?
A lot of us have heard the words Debt Consolidation, but are confused about what they exactly mean. It can also be tricky to understand how a Debt Consolidation Loan might help you.
In today's world, many of us are struggling to pay high-interest rates on our debts. However, this applies particularly to credit cards, store cards, car leases and various other kinds of personal loans. As a result, it just takes one unexpected event in life, such as an illness or an accident for debts to start spiralling out of control. Therefore, putting extreme financial pressure on an individual and their family.
If this happens to you, wouldn't it be great to have a sensible plan put in place to protect your financial interest?
Debt Consolidation Facts
What is a Debt Consolidation Loan? Indeed, it's a type of loan process that allows you to combine your existing loans into one single loan & payment. Therefore, in this scenario, we discuss new mortgage secured loans against your home. As home loan rates typically have lower interest rates than other finance options; they often reduce overall monthly debt payments.
It involves combining all your debts and loans, whether you are up-to-date with payments on them or not, into one loan. This loan should have a lower overall periodical repayment.
A common circumstance is if a person falls sick and cannot work, for example. They may then leave their not so critical loans like credit cards to go into default, while just paying their mortgage. Then the debt and monthly repayments to clear it to begin to mount. However, this can then lead to mortgage defaults as minimum payments on other debts must be paid to avoid debt collection proceedings.
Just defaulting for one or two months is bad enough, but if you let these defaults run up to 3 or 4 months or above, it can become nearly impossible to catch up. Once you are in this situation, your credit rating will be affected, and most traditional lenders will most likely refuse to loan you money in the form of a personal loan.
Debt Consolidation Case Study
Let us take a real-life example of what could happen to any of us. Therefore, David was a fully employed office worker in his mid-thirties on a salary package which comfortably supported his day to day expenses. Of course, this included the costs of his family such as monthly mortgage payments, car loans and the minimum payments on his credit cards. However, unexpectedly, he developed a gall bladder problem which caused him to lose control of his bowels. Therefore, the nature of his condition forced him to take six months off work for treatment.
During these six months, with no income coming in, the family was forced to pay for their daily living expenses with credit cards. David was not in a position to pay his loans and defaulted on his mortgage and car loans as well.
Debt Consolidation Assessment Overview
- Firstly, combine his home loan amount: $202,000 / $1550 per month payments
- Secondly, consolidate his credit card debt : $22,000 / $660 per month payments.
The credit card was also in default with an agreement to pay $10,000 to close the account. Plus there were also 2 car loans to consolidate.
- Car Loan 1: $13,000 at $390 PCM (3 months behind)
- Car Loan 2: $29,000 at $900 PCM (3 months behind)
The critical things to consider in this situation were:
- The bank was ready to foreclose on his home and both car loans
- The credit card company was willing to take 10k to close the account.
- His home value was $330,000 (equity)
- His total loans were $254,000
- His current monthly repayments were $3500
Upon his recovery, David assessed his situation and realised that he couldn't pay off all his defaulted loan repayments and credit cards. However, this worsened as the high-interest rates; and penalties associated with each of his loans have compounded. However, David wondered if now was the right time to use debt consolidation to combine his bad credit into his home loan? After being refused personal loans from several possible lenders and being faced with the possibility of losing his family home, David was advised by a close friend to consider debt consolidation and bad credit home loans.
That is when David approached Loan Saver Network. Therefore, after looking at his situation we believed we could help and offered David a debt consolidation solution:
- Firstly, refinance all Davids loans into one facility.
- Secondly, the obtain a new loan amount to clear all debts. As a result the new home loan amount was $250,000
- Finally, the new monthly repayment on the consolidation loan was $2438 per month
As a result, David reduced his outgoings by nearly $1000 per month. Best of all now, however, was that all the lenders were off his back. He is now able to put the past in the past and move forward.
Debt consolidation mortgages are saving various families like David's from losing everything. Therefore, if you are in a similar situation, then contact us on 1300 796 850 & find out how a Debt Consolidation Loan may help you.
Contact Loan Saver Network today on 1300 796 850 to discuss consolidating your debts.