Adelaide, Australia (PressExposure) January 13, 2012 -- A New Year is a nice fresh start but often leaves many with credit card hang-overs and regrets for not having had the foresight to be more money smart.
Credit card and personal loan consolidation into your home loan can certainly take the sting off monthly repayments, but careful! You can find yourself actually paying more interest in the long term, if youre not money smart about how you do it.
Miriam Castilla, a finance adviser who teaches people how to manage their own money, says "In late January/February clients usually start calling to ask for help & advice on debt consolidation"
She cites an example to ilustrate:
Lets use a credit card which is maxed out at $10,000 as an example, so we can compare some numbers:
- The maxed out card would cost you approximately $175 per month in interest alone (at a 21% credit card interest rate) let alone trying to pay back the $10,000!
- If consolidated into a home loan at say 6.3%, your monthly interest cost plummets to $52.50!
- If you simply lump it in with your home loan & make principal & interest payments, it adds $62 pmth to your costs
Many people hear this & want to dive right in. But caution is warranted.
Its all very well to save on interest & lighten the burden on your pocket, but how much will it actually cost you in the long run?
Castilla says: "Do you realize that if you do the latter & simply pay $62pmth, it will cost you over $12,000 in interest alone over a standard 30 year home loan term? PLUS the $10,000 principal!"
However all is not lost! Its just a matter of being a bit money smart. Have a look:
You can consolidate into your home loan & save on interest charges, but choose to pay the $175 it would have cost you in credit card interest towards it. That means the $10,000 is erased in just under 6 years and cuts your interest charges down to about $1,900 Youve just saved $10,000!!
Some helpful hints:
Consider consolidating debts, but only as a means to help you pay them off faster
When consolidating, keep up the same repayments as you were making before
Never just consolidate and let it sit
Get Money Smart & learn how to plan ahead!
"Incidentally, we see this all the time and people sometimes complain how long it will take to pay back a measly $10,000 credit card debt when they already have a home loan to worry about." , Mrs Castilla adds
"Isnt it interesting how quickly were prepared to spend it, without giving consideration to long it may take us to pay it back?
$10,000 is no measly amount. Its a lot of money. This example is very common in our office and unfortunately we often see it compounding - a person will consolidate $5,000 now, another $5,000 in 6 months, maybe another $10,000 in a years time."
It's wise to get a system in place to help you save up in advance for the next Christmas & holiday period and avoid the same stress heartache in 12 months time.
"We're passionate about helping peole learn to manage their money and we show them how quick & easy it actually is. This is why we've launched our new website at [http://www.goalsmart.biz]. We love seeing people get excited when they realise they can set and achieve financial goals & successes. It's very satisfying for us".
So by all means, consider consolidating that christmas debt, but be sure you do it wisely so it cost you less, not more.