Debt Consolidation

The Age

Wednesday February 5, 2003

Tracey Kift

Sick of juggling repayments to credit cards, mortgages, personal loans, overdrafts and store cards? Consolidating your debt may save you money and stress.

National corporate affairs manager of Mortgage Choice Warren O'Rourke advises that consolidating a number of short-term debts, such as personal loans and credit cards, with a mortgage offers borrowers reduced interest rates and can slash monthly debt repayments by hundreds of dollars.

Add to this the chance to replace multiple repayments with just one and debt consolidation looks like an attractive option.

The key to making this strategy work is to avoid the siren song of the credit card.

Mr O'Rourke says people often fall into the trap of continuing to use their newly cleared credit cards and end up back where they started.

"So there has to be a New Year's resolution that if you're going down this path that you're going to be strict with yourself about how you use your credit card."

While borrowers will be attracted to debt consolidation by the promise of cutting monthly repayments, Mr O'Rourke says those who are able to maintain their current repayment rates after consolidating their debts will maximise the benefits of the strategy and dramatically reduce their home loan.

While this strategy has potential benefits for borrowers, the Australian Securities and Investments Commission (ASIC) says it is not the answer for everyone. If borrowers end up with a higher rate of interest, increased fees or continue to borrow on their credit card, they can end up worse off.

ASIC's consumer website www.fido.asic.gov.au lists five questions borrowers should ask to determine whether debt consolidation will save them money in the long term:

• What is the difference (in dollars per week) between the interest you pay now and the interest you will pay if you consolidate your debts?

• What is the difference (in dollars per week) between the fees and charges you pay now and the fees and charges you will pay if you consolidate your debts?

• Will you be borrowing any money to pay off debts that do not charge you interest now?

• Will you have to mortgage your home or other property that is not mortgaged now?

• Will you stop using your credit card?

Top two-year fixed home loans**

Banks
Lender          Product                 True rate       Lender  Total
Ongoing                 Exit
                name            AAPR*   rate    upfront fees    fees
fee
Homeplus        2-year Fixed    6.27%   6.40%   $600            $10/month
$300
ING Bank                2-year Fixed    6.33%   5.99%   Nil             Nil
        $100
Bank SA                 2-year Fixed    6.45%   5.99%   $654            $5/month
                $272
ANZ Bank        2-year Fixed    6.52%   6.30%   $600            Nil
$90
AMP Banking     2-year Fixed    6.53%   6.29%   $600            Nil
$150

Non-banks
Lender                  Product                         True rate
Lender  Total           Ongoing                 Exit
                        name                    AAPR*           rate    upfront
fees    fees            fee
Pacific Mortgage Corp   2-year Fixed            6.29%           6.34%   $300
        Nil             N/A
FAI Home Loans          2-year Fixed            6.39%           6.26%   $499
        Nil             N/A
Homeloans Ltd           Smart Saver 2-year Fxd. 6.39%           6.34%   $799
        Nil             $150
Easy Street Fin. Services       Easy Fixed 2-year               6.49%
6.20%   $828            Nil             $100
RAMS Mortgage Corp      2-year Fixed            6.51%           6.20%   $820
        Nil             $295

*AAPR is the annualised percentage rate - the rate after extra fees and charges
are taken into account.
**Rates are for loans of $176,000-$275,000 in Victoria for owner-occupied homes.

Compiled by www.interestrate.com.au using Cannex data (January 29).

© 2003 The Age

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