The good the bad and the credit card. Is it time to consolidate debt?
Debt can be good if it’s used to purchase an investment property or your first owner occupied home. However, there is also bad debt which most Australians are unfortunately well aware of and have become comfortable with such debt.
Credit cards and personal loans serve their purpose but too often we have experienced their vicious cycle as high interest rates together with late fees add to the never-ending burden.
On one occasion I had a client with over $60,000 of high interest credit card debt. Had he only made the minimum repayment, it would take 48 years and 2 months to be paid off completely. At the time he was 55 years old. One solution would have been to do a balance transfer, which provides a low interest rate period or at times even interest free. This would have allowed him to get back in control for a 12 to 18 month period. However, it would not have been the most ideal long term solution.
The alternative and the most suitable outcome was to help my client by refinancing his home loan to a lower interest rate and consolidating his credit cards by creating a split loan, on a 5 year term. This had the effect of ensuring he was not extending the term to 30 years and separated the repayment from his mortgage.
My client could now manage the monthly repayments and at the same time had savings as a result of the lower mortgage interest rate, to make extra payments and reduce his debt burden over a decisive time frame. A simple restructure helped him save thousands and simplified his finances which put him back in control.