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Family finances: Should we consolidate our loans?

SPONSORED: Make your family's budget go further – restructuring your debts could ease your cash-flow

Family finances: Should we consolidate our loans?
Family Finances

When you’re trying to organise the finances of your family, one of the most common pieces of financial advice that you’ll hear is that you should start by consolidating all of your loans into a single line of credit or loan facility.

This makes a lot of sense – by bringing all of your debts together, you are simplifying the debts that you need to service, probably making some savings in terms of fees and interest payments, and possibly helping you to change some of the behaviours that got you into financial difficulty in the first place.

There are however some exceptions to this. If you or your partner have a student loan, you should seek independent financial advice before jumping straight into a debt consolidation. Depending on where you’re located, there are lots of different types of student loans – the type of loan that you have will guide the type of action you should take if you are wanting to simplify your financial arrangements.

Will consolidating or refinancing my student loan impact the benefits I received?

The terms of a student loan are generally fairly specific, and will include a range of benefits that are linked to the nature and purpose of the loan.

It’s highly likely that if you choose to consolidate or refinance your existing student loans, then you will be losing the beneficial terms and will be converting the debt to standard consumer debt terms.

There are specialist student loan consolidation companies that may be able to assist you if you are considering refinancing an existing student loan.

Is consolidating our existing loans always the best option?

There’s a lot to recommend loan consolidation – you reduce the complexity of your financial affairs, you have one interest rate, one repayment to make, and less commitments to try and stay on top of.

However you need to ensure that you’re not ending up payment more over time – while it may appear that your repayments are lower, or your interest rate is more affordable, if you’ve extended the period of the loan you may end up payment more over the entire length of the loan.

Be sure to seek independent financial advice and compare the available options on a like-for-like basis.

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