If you are labouring under numerous different debt repayments that are high interest short term loans like clothing accounts, short term loans, vehicle finance or just owe someone you know money that you would really like to pay back as soon as possible then consolidating your debt using the equity in your home could be the right choice for you.
When you have many small accounts, each of them has a service fee/monthly fee (not interest), maybe a card fee and of course interest at a rate that is probably higher than prime plus 10 or 12%. When you add up all the fees and interest you will be shocked at what it actually costs to borrow such small amounts or how much it costs to buy on credit from stores. You may have a child on the way or inflation has just got the better of you, you may have a family member that needs help or a medical issue that is costing a lot more than anticipated.
It is at times like these where we fear that we are not going to be able to service all the short term debt that we have which may end up with us being listed with a credit bureau, that we need to consider debt consolidation using our bonds.
What you are effectively doing when consolidating your debt, is taking all of the small amounts that you owe and paying them off with the money available to you in your home loan. Your home loan is a much lower interest bearing loan than any credit facility or short term loan and can very effectively reduce your repayments by as much as half or even more. What you do need to be aware of, is that you are now paying off a short term debt over a much longer period when you consolidate your debt using your home loan.
Debt consolidation is meant to get you over the hump, avoid getting a negative credit report and allow you to breathe while you plan your way forward. Once you are over the hump you are able to make additional payments into your bond without any penalties for early settlement and effectively free up capital again in case you need it.