So to be honest I was really procrastinating writing this blog. I’m not sure if it was because I just didn’t know where to start, or because I was so ashamed about the situation we had gotten ourselves into, particularly given I provide advice on this daily to my clients.
When I first started working, I had one credit card with a $500 limit. I was working at the bank at the time so paid next to no interest (perks of staff rates) and paid the balance of every month – oh what a good kid I was 🙂
Fast forward 5 years….throw in a new house, investment property, trip to Europe and a wedding all in the space of 18 months and you know where that will land you – yep, either dead broke or in a substantial amount of debt. We had the latter of the 2 and it was a LOT.
It is actually scary how easy it is to get credit these days…don’t get me wrong, we are lucky to be on good incomes but banks are basically throwing credit cards at you – not to mention the things they try and lure you in with. One of my cards had a rewards system…sounds great apart from the fact the last time I checked the points for a kettle equated to around $1,000 – wow, what a bargain!
Anyway to cut to the chase, they needed to go – ALL of them. I think by the time we were done we had at least 10 cards between the two of us (I know, I feel sooo ashamed), and by the time I added up just making the minimum repayment on all of those it was at least $1,000 a month.
Now lucky for us (and I know not everyone is in this position), but we own our apartment in Melbourne and fortunately it had gone up in value since we bought it (all hail the property boom). We were able to then use the equity (value of our home less the debt owing) to pay off our credit card debt and add what we owed in total onto our home loan. This really does 3 things:
- Reduce the interest you pay (most credit card interest rates sit around the 20% mark vs a home loan rate which is currently sitting at around 4%
- Reduce your monthly repayments
- Put it all into one easy payment
As a result of our debt consolidation refinance, we went from paying $1,000 in minimum credit card repayments each month, to adding only an additional $100 per month onto our home loan payments – a grand saving of $900 per month!! This extra money we were paying to the bank can now be used to pay down our mortgage faster, or go on a holiday – using our own money!
It was a liberating moment when I cut up all those cards and I don’t ever want to find myself in that position again. I’m not saying credit cards are all bad, they serve a purpose and work well for some better than others. In my opinion, if you struggle with self-control and like to spend (like me) they are a BAD idea!
As I said, I know not everyone is in the position that we are in, but there are many ways to start taking control of your debt – and using your existing home and mortgage is just one of them. Start using our budgeting tool so that we can help you to make a plan for the future.
Click here if you would like to speak to our preferred mortgage broker to determine if you can consolidate your debt against your home loan.
