Be careful when consolidating your credit cards

It’s that time of year again when your Christmas credit card bills turn up. You can consolidate your credit cards but need to be careful. You might end up paying more in the long run and reduce the equity in your home.

What is debt consolidation?

Debt consolidation is where you transfer your credit card debt and any personal loans to your home loan. The advantage of doing this is that the interest rate on your home loan is lower than you’re paying on your smaller debts. You might also benefit from one regular and manageable repayment. However, there are some things you need to be aware of.

Debt consolidation is not debt elimination

Since debt consolidation clears the debt from your credit cards, the temptation is to think that you’ve paid off the debt. But you haven’t. You’ve merely transferred the debt to your mortgage. So, once you’ve consolidated your debts, consider snipping your credit cards in two. Otherwise, you could get trapped in a debt spiral.

Remember the 80% threshold

When you took out your home loan, you might have been under the 80% loan to value ratio, which meant that you didn’t have to pay lenders mortgage insurance. Be careful when you consolidate your debts that you don’t reduce the equity in your home and have to pay lenders mortgage insurance.

At Craig Tracey Lending we can show you how to stay on top of your finances by consolidating your credit cards. Click here for more details:  Consolidate your debts

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