Credit Cards; The Secret Show Stopper

Earlier this week one of our brokers got a letter in the mail from her bank saying that she has been pre-approved for a $10,000 credit card - all she needed to do was call her bank and they would get it sent out to her.

Accumulating short-term debt is easy, quick and can seem harmless if you just use if for emergencies - but that same credit card can really impact your ability to get a mortgage. Below we discuss how your short term debt can affect your borrowing power and what you can do to get back on track.

It really is so easy to accumulate short term debt. You see it everywhere; want a new laptop? They will ask if you want to put it on a QCard, or a GEM Visa or any other quick, easy on the spot card. Short term debt really affects your borrowing power - A Credit card with a $10,000 limit could decrease your home lending ability by upto $45,000 (based on two adults on combined income of $100,000).

Even if the credit card isn't fully drawn, you could go out and spend the available balance when you want, so they have to allow for the expense as if the credit card was fully drawn.

When the bank is assessing your application - they want to make sure that this loan and any other debt you have isn't going to cause you into financial hardship. All  debt including personal loans, car loans, hire purchases, credit cards, store cards, GEM Visa, QCards, overdraft facilities etc. all greatly affect your ability to afford your home loan repayments

If you have already accumulated this short-term debt, what can you do now?

Write down a list of all the debt you have, and the interest rates and focus on paying off the higher interest items faster. 

If you don't need it - reduce it or remove it.
Budget - Once you have identified how much short-term debt you have, it is worth looking into why you have this debt. Look at your statements, where is your money going? What are your spending habits? What are your necessities and what can you cut back on? To break the debt cycle, sit down, make a budget and stick to it.

Consolidate - If your short term debt is becoming hard to manage or you are paying high interest rates, it could be worth consolidating this debt. If you already have a mortgage with equity available, you could look at consolidating this into your mortgage. Otherwise you could look at consolidating your short-term debt into one, easy to manage loan. Either way one of our Broker's will be able to help. We can talk your through the process and help you get your finances back on track.

Want to make a plan today? We can help, call us today - 07 959 1851

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