If you are overwhelmed by debt, including personal loans and/or credit card debt, now is the time to consider debt consolidation. Debt consolidation should not be confused with debt elimination, and there are many factors to consider before choosing this route. Debt consolidation has many benefits, but can also decrease the equity of your home over time.
First, it is important to understand that debt consolidation involves transferring any of your credit card debt or personal loans to your mortgage. Many people find this to be a good option, because the interest rate on their home is generally lower than that of their other debts. This option also allows people to make one manageable payment on all their debt per month, as opposed to several.
Even though debt consolidation is very helpful for most, it is crucial to remember that debt consolidation is not debt elimination. Once you transfer your smaller debts to your mortgage, the balance on your credit cards once again becomes zero. The temptation to spend on these cards increases, so it might be helpful to snip your credits cards in half to reduce the urge to accumulate new debt.
While debt consolidation may benefit you, it is important to understand how adding the smaller debts affects your mortgage. When you bought your home, you may have been under the 80% loan to value ratio. This means that you do not have to pay lenders mortgage insurance. Make sure that if you add new debt to your mortgage that you do not reduce the equity in your home or end up paying lenders mortgage insurance.
Lastly, you must remember that personal loans are not tax-deductible. While the interest charges on an investment loan are tax-deductible, the interest on your home loan is not. When consolidating debt, you need to understand how much of the interest is tax-deductible.
If you believe that debt consolidation is the right step for you, contact us today. Our brokers would be happy to help explain the process to you and help you determine if debt consolidation can help relieve your financial worries.
Mortgage Masters are expert mortgage brokers in Newcastle, Maitland and Hunter Valley. Get the best mortgage advice by contacting us today!