Debt Consolidation

[Wealth Creator]

Hi All,
I have a serious dilemma which I am hoping I could get some help with.

My circumstances:

28 year old single male
Income = $71,000 (approx. $100,000 with over time)
PPOR worth $265,000 (debt = $207,000)
Credit card debt = $24,000
Personal loan debt = $6,000

I am looking at the alternatives to consolidate all my debts. I want to eliminate all credit card and personal loand debt ($30,000) as trying to keep up with repayments is a real struggle at the moment.

I have inquired with my bank who said that I could get an increase on my home loan from $207,000 to $237,000 to eliminate all my debts.
This sounds like an appealing option, however I am very keen to invest in property and I am wondering what the effects of doing this method of debt consolidation will have on my future potential to invest in property. If it means that I won't be able to invest in further property for 2 years or so then I am not too sure that I would like to go down this path.
Is there somebody who has been in this situation before or somebody who could inform me of the best method to eliminate my credit card and personal loan?

 

[The Y-man]

Hi All,
I have a serious dilemma which I am hoping I could get some help with.

My circumstances:

28 year old single male
Income = $71,000 (approx. $100,000 with over time)
PPOR worth $265,000 (debt = $207,000)
Credit card debt = $24,000
Personal loan debt = $6,000

I am looking at the alternatives to consolidate all my debts. I want to eliminate all credit card and personal loand debt ($30,000) as trying to keep up with repayments is a real struggle at the moment.

I have inquired with my bank who said that I could get an increase on my home loan from $207,000 to $237,000 to eliminate all my debts.
This sounds like an appealing option, however I am very keen to invest in property and I am wondering what the effects of doing this method of debt consolidation will have on my future potential to invest in property. If it means that I won't be able to invest in further property for 2 years or so then I am not too sure that I would like to go down this path.
Is there somebody who has been in this situation before or somebody who could inform me of the best method to eliminate my credit card and personal loan?

The BEST investment you can do at the moment is to PAY OFF the personal loan and credit card components of the debt (assuming they are not for investment purposes) before you even contemplate your first IP.

Cheers,

The Y-man

 

[Alanna]

I agree to pay off the personal debts. Remember, your PPOR will appreciate in value, giving you equity for investment over time, whereas the personal debt will only increase if you do not pay it off, putting you even further behind.

Given your income, you should be able to make a sizeable dent in your homeloan fairly quickly, do you have an offset mortgage account or would you consider refinancing for one of these?

Good luck
Alanna

 

[Simon]

I disagree.

A new property which puts money into your pocket each week will help reduce the debts. Hard to find I agree but I see people finding them!

I would be wary of consolidating. Whilst it can help a lot is also can mean that these consumer debts can take 25 years to pay off.

You have equity in your home and that will continue to grow with time. Pay down the smaller debt first - this will give a feeling of progress.

In the meantime research research and research your investment strategy and look at a lot of property. Also put some effort into reading and speaking to people about changing your attitude towards money and debt. I know it sounds corny but it really makes a difference. A rule I made was to never again have non deductible debt except for a small CC limit for convenience. I have a lot more debt than you but with the incomes generated and the tax treatment of it I have no trouble servicing it.

All the best to you mate and if you need help with ideas just ask!

Cheers,

 

[Simon]

I agree to pay off the personal debts. Remember, your PPOR will appreciate in value, giving you equity for investment over time, whereas the personal debt will only increase if you do not pay it off, putting you even further behind.

Given your income, you should be able to make a sizeable dent in your homeloan fairly quickly, do you have an offset mortgage account or would you consider refinancing for one of these?

Good luck
Alanna

Alanna is right about the offset - they are very very useful tools. Please make the dent into the offset rather than the homeloan as she says!

Cheers,

 

[Twitch]

I'm with Simon here.

Our household constantly struggles paying down credit card debt, and usually I don't quite manage to clear it by the end of the month. The thing is though that this is what contains our spending, the fact that we are regularly bumping up against our (albeit not very high) limit is what contains our spending habits.

I know if I consolidated our credit card debt into our mortgage that our credit card debt within 3 or 4 months would be back to where it is now, only now with a higher PPOR mortgage.

I think the answer is for you to not consolidate the debt, and to pay off your card and personal loan. Then lower your limit on your card.

Oh yeah, then you might want to attend a regular CCA (credit cards anonymous) meeting, I might even see you there.

 

[The Y-man]

Hi All,
I have a serious dilemma which I am hoping I could get some help with.

My circumstances:

28 year old single male
Income = $71,000 (approx. $100,000 with over time)
PPOR worth $265,000 (debt = $207,000)
Credit card debt = $24,000
Personal loan debt = $6,000

I am looking at the alternatives to consolidate all my debts. I want to eliminate all credit card and personal loand debt ($30,000) as trying to keep up with repayments is a real struggle at the moment.

I have inquired with my bank who said that I could get an increase on my home loan from $207,000 to $237,000 to eliminate all my debts.
This sounds like an appealing option, however I am very keen to invest in property and I am wondering what the effects of doing this method of debt consolidation will have on my future potential to invest in property. If it means that I won't be able to invest in further property for 2 years or so then I am not too sure that I would like to go down this path.
Is there somebody who has been in this situation before or somebody who could inform me of the best method to eliminate my credit card and personal loan?

Hi WC,

Just an additional observation.... what are your living expenses? According to a rough guesstimate, the interest on the repayments would be about $21k per year? Even given principal repayemnts, you earn $70-100k per year.... how is it your are struggling?

Cheers,

The Y-man


p.s. apologies in advance if I have made some major number crunching blunders....

 

[Bill.L]

Hi all,

With income like that Wealthcreator, for a single 28 year old, you need to have a good long look at what you spend your income on.

Assuming you can service your existing debt and lifestyle on your base salary of $71,000, you would have at least $15,000pa available to pay off your debt. As all your debt is non deductable choose the highest interest one to get rid of first.

Consolidating all your debt could be a good option, PROVIDING you pay at least the $15k pa off the total debt.

If I was in your position, I would want to get rid of those debts as quickly as possible before rushing out to get into more debt for investment. It would also set up a saving habit that could be used to service investment debt at a later time.

You have time on your side, and with both the recent property boom and sharemarket boom, there is no rush. Both types of booms will occur many times in your future investing career.

bye

 

[Ajax]

I am also wondering why you are struggling if earning $70k-$100kpa. I was in a similar situation quite a few years ago.

You need to look at what you are spending your disposable income on...drinks after work, impressing potential partners with expensive nights out, the latest music and hi-fi equipment, new clothes, latest mobile phone etc (my grandfather would have called it "wine, women and song"). It is surprising how much of what we spend is non-essential. If you own a car is it possible to trade down to a cheaper car and put a dent into the personal loan and credit card debt?

I would try to pay down the credit card debt before consolidating...if you consolidate without cutting back on spending you will find credit card debts are back to where you started quite quickly + you now have a larger home loan to repay over 25 to 30 years.

P.S. My solution years ago was a bit more radical. I quit the job, sold my car, paid off all credit card debts, let my house (the rent just met the mortgage payments) and took the remaining $5k with me and travelled/lived in South East Asia (Indonesia is a very cheap place to live) for 10 months. House went up about $80k in value whilst I was away. This solution will not look good on your cv.



Ajax

 

[The Y-man]

You need to look at what you are spending your disposable income on...drinks after work, clothes, mobile phone etc. It is surprising how much of what we spend is non-essential. How often are you eating out at restaurants? Ajax

I remember we managed to live on $2,000 per month for TWO people, and that INCLUDED rent - even adjusting for inflation, it shouldn't have gone up that much..... ok, so these days it's $3,000 per month, but that's renting a bigger place, and enjoying a few more "luxuries"

Cheers,

The Y-man

 

[Rolf Latham]

Hiya

I WOULD consolidate, take the home loan and make it IO, take a 30 k split P&I and pay that sucker off as fast as you can.

In the meantime, lower the credit card limit to a more sensible 5 or 10 k and then maybe look at doing some more investing.

ta

rolf

 

[Wealth Creator]

Thank-you all for your quick response and help.
Each point that you have made is valid.

To start answering I will start with "why I am struggling on $70-100,000 / year". Up until this point in my life I have been very much a live today don't worry about tomorrow type character. I have seen the world, wined and dined and pretty much bought whatever I wanted admittedly with other people's money. Approximately 6 months ago I received a pay rise (current income) and it got me thinking about things and how I have nothing to show for myself and if I kept living the way I'm living then I will die broke.
I therefore started researching and reading material on psychology, investment etc and although I am still a novice I have decided that property is the form of investment I am most comfortable with.

I have drafted a budget and am really watching my spending. I am making some progress towards repaying off my debts. However after assessing my options, refinancing is very appealing to me mainly because I will have one monthly repayment and I will save approx. 500 / month which I would plan to put into the new loan. I know that it will increase the size of my current loan by $30,000 but I have become disciplined enough to really watch the pennies and I feel this method will put me back on my feet. My current minimum monthly repayments are $1,400 for PPOR loan, $360 for C/C and $325 for personal loan. My new minimum mortgage repayment will be approx. $1600/month and I plan to repay $3,000 / month.

Thanks again for your opinion everybody it is greatly appreciated.....

 

[skater]

Hiya

I WOULD consolidate, take the home loan and make it IO, take a 30 k split P&I and pay that sucker off as fast as you can.

In the meantime, lower the credit card limit to a more sensible 5 or 10 k and then maybe look at doing some more investing.

ta

rolf

You have received many replies & they are all good, however I believe the above is the best. The only thing I would add is to have an offset account attached to your loan. Also to enable you to increase your repayments it may be prudent to cut up your credit card. That way the temptation to spend on it will be gone.

 

[alwayscurious]

Chin Up!

Thank-you all for your quick response and help.
Each point that you have made is valid.

To start answering I will start with "why I am struggling on $70-100,000 / year". Up until this point in my life I have been very much a live today don't worry about tomorrow type character. I have seen the world, wined and dined and pretty much bought whatever I wanted admittedly with other people's money. Approximately 6 months ago I received a pay rise (current income) and it got me thinking about things and how I have nothing to show for myself and if I kept living the way I'm living then I will die broke.
I therefore started researching and reading material on psychology, investment etc and although I am still a novice I have decided that property is the form of investment I am most comfortable with.

I have drafted a budget and am really watching my spending. I am making some progress towards repaying off my debts. However after assessing my options, refinancing is very appealing to me mainly because I will have one monthly repayment and I will save approx. 500 / month which I would plan to put into the new loan. I know that it will increase the size of my current loan by $30,000 but I have become disciplined enough to really watch the pennies and I feel this method will put me back on my feet. My current minimum monthly repayments are $1,400 for PPOR loan, $360 for C/C and $325 for personal loan. My new minimum mortgage repayment will be approx. $1600/month and I plan to repay $3,000 / month.

Thanks again for your opinion everybody it is greatly appreciated.....

Hey dude. Chin up.

Firstly - well done for facing the music as to why your cc has got to where it is now.

Warning: Lecture!
Now, for the hard part - can you discipline yourself?

When we were kids we may have received discipline for doing wrong things.
This helped guide us onto the correct path.

When we are older, it's up to us to discipline yourself - it's called self discipline.

Discipline is hard. It is hard to dish out I am a parent of v young kids, and is hard to receive - I still remember the pain!!.

However there are two pains:
the pain of discipline which weighs ounces
OR
the pain of regret - which weighs tons.

I am aware of your situation and have skated close to those circumstances myself.

Now, get to it. Be hard on yourself at first, - face the pain of discipline, because no one else will do it for you, until it is too late - and then you face the pain of regret.

good luck and keep us updated!

 

[crest133]

Perhaps I'm missing something obvious here, so please correct me.
Let's say, Wealth Creator consolidates his c/c debt & personal loan debt totalling $30K into the home loan.
This should mean that the interest rate on the outstanding amount immediately reduces to say 6.5%. That's a good start.
Then, if Wealth Creator applies his determination and pays that $30K amount off his home loan over the next 12 months as additional payments, then the credit card debt & personal loan debt are gone. That would impress most lenders I know, and improve borrowing prospects.
Is that how it goes ? If so, go for it Wealth Creator, make hay while the sun shines.
cheers
crest133

 

[Simon]

Then, if Wealth Creator applies his determination and pays that $30K amount off his home loan over the next 12 months as additional payments, then the credit card debt & personal loan debt are gone.

This is the area that many debt xonsolidaters fall down in. In addition their cards seem to magically hit the limit again in no time at all.

This is why I am not a fan of consolidation unless a person changes his attitude towards money. Debt is a great tool but you need to use it as such.

Cheers,

 

[Kris Sheather]

I am in a similar position myself at the moment so I understand how you are probably feeling at the moment.

I have made a few bad decisions that have resulted in me having several bad debts that I am working on getting rid of. I am keen to get into options trading and property investing etc but I think paying down the bad debt is an essential step.

I currently have an application in to consolidate my two credit card debts of $15,500 combined into a personal loan, then close the credit card accounts. I think no temptation to spend more by not having the credit cards at all is the best option for me.

I am planning on paying down the consolidated loan as quickly as possible (maybe $1,000) per month, then getting into the investment market. At the end of the day I take this as a lesson so I'm trying to keep a positive view about things. In the grand scheme of things this is most likely just a bump on the road.

Best of luck paying down your debts, the main requirements to do so I feel are discipline, determination and a solid plan.

 

[wish-ga]

This is why I am not a fan of consolidation unless a person changes his attitude towards money. Debt is a great tool but you need to use it as such.

Good one Simon.

Paying it back as fast as you can and seeing the "amount owed" decrease each month will make you think day to day about how a 'spend' will impact the next statement.

I agree with the others: looking at spending habits is #1 priority. Not just shuffling from one type of account to another.

Another of our forum friends mentioned taking a look at things like reassessing the type of car you drive. That is a good idea.

Yes the 18% interest on a credit card is a killer but the pain of remembering that may help keep future spending in check.

When you go out keep the card in a drawer at home. Don't use it. Pay off what is owed. Drop the limit to $500 or $1000 straight away.

You are on a good wage so well done. With a few changes you will be out of debt really soon. Good for you and you will master this very soon. You are determined and you can do it! (and to Kris too!!!)

 

[Rixter]

Yep , consolidate the 30k into the homeloan then be disciplined & pay it down as fast as you possibly can.

 

[Wealth Creator]

Thanks everybody. I think I will consolidate into the home loan as I feel that I am mature and responsible enough to handle it now.

I am also going to look at this as a lesson that needed to be learned and in the greater scheme of things I will call it the "spark" that kick started my investing career and hopefully I will be thankful that this happened to me one day. Admittedly it is a very expensive lesson but I believe it is never too late and at 28 I feel I have the time on my side to recover from this. I am trying to look at everything from a positive angle as I believe in myself enough to turn things around and make it happen.
Thank-you all once again for your input. I love this forum.
I will keep you all posted on my progress......

WC