Consolidating Debts

[kimcam]

Hi Andie,

I have a quick question around the end of Jan beginning of Feb 2006 we refinanced and got a Home Loan through ANZ bank. However, we kept 1 credit Amex and I got another credit card ANZ visa. The Amex is over the limit by $900 and the ANZ is almost near the limit as well. Our car is 9 years old and has oil leaks and will cost another $2000 to get everything fixed. We are not very good with managing our credit cards and are thinking of getting a Visa Debit Card instead.

Do you think we should put the credit cards onto the existing home loan. Also we need to get a bigger car and instead of getting a car loan see if we can add to the mortgage as well. Looking forward to hearing from you soon.

Regards,
Kim

[andie_pandie]

Hi Kim

With regards to debt consolidation there are factors that need to considered. One of these factors is making sure there is enough equity in the property to hold both the home as well as the consolidation. Most banks will only allow up to 90% including the consolidation, hence you need to have at least 10% ownership of the property.

If you have enough equity then it can be a good idea particularly as the interest rate is quite a bit lower than personal/car loans at present. The downside is if you pay the bare minimum repayment than it will take longer to pay out this debt, however if you go in paying more than you need to straight away then this can be lowered straight away. I always work out approx what the payment would have been if they had taken out a personal loan and see if they can afford at least 3/4s of this amount towards the home loan, hence paying out the debt consolidation proportion quickly then you are in the habit of paying that amount hence the home loan proportion will decrease as soon as the debt proportion has cleared.

If you don't have enough in the home at present then another option may be to get a low interest credit card in the short term and consolidate the two cards, then try to pay as much as you can whilst a much lower interest rate. Then by the time it comes off the low rate you should have the cards at more managable level.

And yes a debit visa is a fabulous card, this way you will be using your own money not the banks. You still have to keep a eye on what you are spending as the date of the transaction may not be the date that the money comes out of your bank account. The last thing you want is overdrawn fees on your bank account as these do add up.

This is a great time of year to also do up a budget and really look at what you are spending. You will be surprised, as consumers we are all spending far to much and I am also guilty of it.

If you need me to work out some figures for you and work out if you do have enough equity you are welcome to PM me.

Regards Andrea