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Consolidating your credit card debt at home loan rates can be an effective way to reduce the interest paid and sets you up to be better off in both the short-term and the long-term.
Blogger: Robert Projeski, Australian Mortgage Options
Silly season is well and truly over, and consumers are now facing the hangover from this period. Credit card bills are now in and consumers have to pay off all those summer days on the beach, holidays, and bottles of champagne that went on the cards.
With the credit cards weighing people down as they meander back to work, smarter consumers are seeking comfort in the fact that they are going to consolidate their credit card debts at home loan rates and save themselves considerable money with the lower interest rates.
Buyers who purchased property over the past 12 months in Sydney have in some cases enjoyed capital growth of approximately 15%. With the average house price in Sydney now sitting at around $650,000, homeowners on average are approximately $100,000 wealthier today than this time last year. Homeowners can either struggle under high credit card interest repayments, or take advantage of the wealth created in their property that has accumulated over this period to pay out these debts and move into 2014 without the weight of a high interest credit card debt.
So how does this work? There is generally a considerable difference between the interest rate consumers pay on their credit card repayments and their home loans. Credit cards can attract a rate of up to 20% interest, whilst home owners are now enjoying the lowest interest rates in 50 years and are paying around 5 % to 6%, depending on the product and lender.
The capital growth enjoyed by Sydney homeowners over the last 12 months means that they have increased equity in their properties; this allows homeowners to increase their lending capacity. Homeowners can use the increased equity in their property to borrow money to pay off their credit card debt. They can use this equity and set up a separate account to consolidate any debts that are at a higher rate.
As an example, if a $20k credit card debt at the rate of 18% and payments at $600 per month, this can be a considerable burden on their cash flow.
If we used the equity, this would bring the minimum repayment down to $110 per month. But if they opted to pay the $600 per month, they would pay out the credit card portion in less than 3 years.
This method should save you a considerable amount of money and hopefully you’ll have a little more money in your pocket.
About Robert Projeski
In the late 90’s, Projeski broke away from the banking industry with the goal of helping borrowers pay off their mortgages sooner. His formula worked and AMO is now considered one of the leading independent mortgage management firms in Australia, operating with the philosophy “we will show you what the others don’t want you to know”.
Debt refers to the amount of money borrowed from a creditor with the intention to pay back at a specified date.